How to Spot a Fake Lender
How can a real estate investor like yourself spot a fake lender? Being able to identify which “lenders” are scammers and fakes can be difficult for newer investors. Believe me, when I say that the longer you are in the business you will be able to quickly pick them out of a crowd. So this is definitely for newer investors, yet still sometimes, even for seasoned investors, who may be stuck in a pinch, when one of these scammy posts comes around, it may be enticing to try and see if their terms are legitimate, don’t! In the video above I go through several ways that you can tell a fake lender, or a scam apart from a real offer of business, especially on social media. Below are the highlights and what you could do to quickly protect yourself and be able to verify if the lender is who they say they are.
Lenders Require Collateral
Now not every lender does require collateral, but real estate lenders, who are loaning to real estate investors, do require collateral. By having a hard, tangible asset they are able to reduce their interest to a point where the RE Investor can make a decent return, and is able to leverage their existing cash, and the lender has security. If you speaking with a “lender” that says they don’t care about collateral, beware!
Downpayment Required
It’s nice to think that you could get 100% financed loans, but in reality, the type of lenders you want to work with are those that actually want to see that you are willing to “put your money where your mouth is”, in this case towards the purchase of the property. Many lenders require 10%, 15%, or 20% down on the purchase. They may or may not fund 100% of the construction. Typically that will be available depending on how much the total loan is compared to the future repaired value of the asset.
Name of the Game “Risk”
A real lender is concerned about one thing, “How do I mitigate my risks?” If your lender is not focused on this, then more than likely they are only a broker (since they are not lending their money) or they could be a fraud. A true private lender looks at these risks and more to determine if a loan is the right fit for their portfolio.
Local vs National
If your “private lender” holds themself out to be a “national” lender just know this is not possible without a license. In the state of FL, there is no lic. required if the lender is lending from their entity to another entity, and the borrower will not live in the property. Know your state laws so that you can test whether a lender actually know what they are talking about.
Acceptable Fees
We always hear and read how investors get scammed out of money by paying an “upfront” fee and then the “lender” never closes. With all things being equal, there are some fees that a private lender may charge that a national lender may not charge. Knowing who you’re working with is important to help you determine if the fees they are requesting before close make sense.
Unacceptable Fees
WYes there are some fees that are acceptable and should be paid for before closing, however, there are others. And these are the most commonly used name of the fee, that many investors find themselves falling prey to.
Lender Verification
Being able to verify your lender (depending on whether they claim to be a national or just local, and then knowing your state laws for lending) on state or national databases is important. Here are a few ways that you can verify whether your “Private Lender” is someone to be trusted. Remember at the end of the day, if you are approached by a “PL” on social media and they claim to be a private individual looking to make a random person (you) a loan, more than likely they are a fraud.
Lender List Sites
In today’s modern technological world there are many ways for real estate investors to vet and verify even private lenders. Here are a few ways that you can verify if your lender is actually in the business of making loans. Why are these lists sites so valuable, because they charge the lender to be listed on their site. No scam artist is going to pay to have their name publically listed to then scam people out of money.
Are you disappointed with the performance of the markets? Are you watching your retirement accounts constantly decrease in value or not even keep up with inflation? Have you ever considered investing like the banks do, and lend your money? Consider partnering with Blue Bay Capital in our Turn-Key Private Lending solution.
Are you a real estate investor looking for a way to work with a local Florida private lender? Are you tired of jumping through all the hoops with national hard money lenders that are more concerned about your credit and personal income than with your experience? Consider allowing BBC to fund your next real estate project!
