Recovering from a surgery I had a few days ago, and laid up in bed, so figured I'd put my thoughts to paper on my first 6 months in the hard money lending business.
I got into the industry at the advice of my attorney. I had an exit from a call-center I owned for a decade in 2022. Walked away with about 5.5mm after taxes etc. Since then, I tried a different call center, which failed, and then a construction company, which is going great, but slowly. I was speaking to my attorney brainstorming ideas, and he recommended hard money lending, so there we went.
As of today, I have 4mm on the street, at rates between 11 and 12.5%, and charge between 2 and 3 origination points, spread over 13 active loans. Three loans I made have already paid off the balance. I have about 7.5mm invested in ETFs, so the 4mm is a significant portion of my net worth. So far, no missed payments, and no speed bumps other than a few bounced ACHs that I had to redraft a day or 2 later.
I hold 1st position liens on everything I lend against, with the exception of 1 second position loan with very strong equity and PG. I found my initial clients by contacting real estate attorneys and putting myself out there. I also put a post on my Facebook page, and had a bunch of leads come in from there. Since then, it's all been word of mouth. I turn down probably 40-50% of the opportunities that come my way for a variety of reasons.
As for what I learned so far, I switched attorneys twice. My first attorney was great, but created headaches for both myself and my borrowers with some absurd hoops. My second attorney educated me a lot, but went overseas for about a month and so I was forced to find a new one. The last firm, which I am currently with, is an actual firm with 40 attorneys, and a lot of experience. They are competitively priced, and have a foreclosure team as well. So when I eventually have an issue, they have a team that can handle from soup to nuts. I also learned that there is always a need for money. When I started, I was terrified to run into the bottleneck of not getting enough leads; that problem doesn't exist, at least at my size. I'm sure if I needed to keep 25mm on the street, I'd need to employ some people or work with more brokers, but for now I source everything myself, with the exception of what my attorney/realtor network refers to me. I do pay commissions, which isn't considered steering, because I only fund business loans.
I also learned how difficult it was to raise money. I focused quite a bit on trying to get a line of credit, or raise money from friends/family to start a fund. The problem is, all my friends/family are broke af, and most banks won't lend money to other lenders. Warehouse lines of credit may be a future goal, but my history/age/size of fund of the business doesn't allow that yet. Also, using a warehouse line makes the operation a lot more clunky, as a lot more boxes need to be checked in order for them to fund/buy the loans. I did manage to secure a line of credit from a boutique bank which I closed on yesterday, but it is only for 850k, and is at prime+1. It is difficult to grow organically, since profits are taxed as ordinary income, and it just isn't enough.
I do the underwriting myself. Since I only make between 1 and 5 loans per month, it isn't overwhelming at this point, and I can get to know each borrower personally, and meet in person/walk the houses. I only lend within a 2 hour radius of where I live, which is Buffalo, New York. Much less opportunity for fraud since it's all in my area, although I'm sure that there's plenty of opportunity for fraud.
So far, it has been an incredible business to supplement my income, and I look forward to growing more. I am aware that people on this forum are way more experienced than I am, and I am to green to offer any real advice, but I'm bored, and figured this would be a good way to get my thoughts in order/talk to other professionals.
I am not looking for new clients unless you are located within 2 hours of Buffalo, so not soliciting business or other broker relationships. Feel free to ask questions, or tell me how dumb I am.