To be a successful money broker, there are certain things you need to do to make your clients happy. In this blog post, we’ll go over the basics of how to become a successful money broker and offer insight into brokering private money loans. Keep reading to learn more!

What Does a Private Money Broker Do?

A money broker is an intermediary between private money lenders and borrowers.

Real estate (RE) investors doing fix-and-flips can sometimes hit the ceiling with their lenders. Financial institutions, like banks, might be unwilling to lend to a real estate investor on a fix-and-flip property, for example. Or an investor might not meet a bank’s lending requirements. They might have a low credit score or carry too much debt.

For some investors, they might have their cash tied up in other investments or assets.

In any case, the investor needs cash to fund their project.

This is where a private money broker comes into play.

After the property is put under contract, speed to funding is critical. The investor has 30 days to complete the purchase and close on the property. Fast closings are essential as the buyer will need to pay insurance, taxes, and other expenses during the period of renovation. Time eats away at profit margins during a fix-and-flip project.

The money broker works with a private or hard money lender to get the investor the necessary funds to close on the property.

Definition: a private money lender (also known as a hard money lender) is a person or institution that provides lending for projects that traditional financial institutions, like banks, won’t finance.

private money lending helps in funding fix-and-flip investments
Many banks will not lend on fix-and-flip projects

How Do Private Money Brokers Make Money?

Private money brokers make their money by acting as a bridge between a lender and a borrower.

Money brokers have a network of lenders they use. Each private money lender will have strengths and specializations in different types of private money loans. Some might specialize in fix-and-flips, commercial, or long-term rental loans. Some might have stricter requirements compared to others, such as requiring a good credit rating or a larger down payment.

A hard money broker works with these hard money lenders to find the best fit for their client’s needs.

Private money brokers make money when the loan is funded. Their fee is usually set by the lending institution and is written into the contract when the loan is closed.

Private money brokers make passive income
Becoming a private money broker is one of the easiest ways to earn passive income in real estate

How Much Do Loan Brokers Get Paid?

On average, brokers make between 1–3% on the amount of the loan.

Individual lenders will set different percentage points on the loan that are paid to the broker.

What are the Skills Needed for Being a Hard Money Broker?

The skillset needed in how to become a successful money broker is multi-faceted. There are many skill sets needed when building a money brokering business, including:

  • Knowing how to market to and find new clients.
  • Knowing how to analyze deals. Do the numbers provided by the borrower make sense?
  • Understanding all the paperwork needed in every transaction.
  • Building relationships in the industry. Get to know realtors, mortgage lenders, and other real estate investors in the field.
  • Maintain a stellar reputation. Protect this at all costs.
  • Don’t overextend. Start small or focus only on certain types of loans.
  • Trust your gut. If a deal doesn’t feel right, don’t do it!

Do You Need a License?

Brokers work directly with a lender. Each private money lender can have requirements for brokers as they might have for borrowers. But except for a handful of states, there’s no federal requirement for brokers. States that do require a license include the following:

  • Oregon
  • Idaho
  • California
  • Arizona
  • North Dakota
  • New York
  • North Carolina
  • New Jersey

Licensing in these states is required if the property exists in that state. If you do business in these states, check with the Secretary of State’s website about licensing requirements.

Grow Your Professional Network

Brokering is about people. You work directly with RE investors who are looking for private money lending. That takes networking. Attend events, make phone calls, send emails and letters, stay active in social media groups. Extend your outreach to meet more potential clients by actively engaging with people in the industry.

Add realtors, builders and handymen, loan officers, and other brokers. Get to know more people in clubs and professional groups in your target market. Deals can come from anywhere, from anyone. Build a network that allows you to catch opportunities when they come available.

Build a real estate investor network to generate business
Private money brokers come with a network of private money lenders and others involved in the real estate investing space

Respond Quickly

Don’t wait to respond to a prospect’s questions. Studies have found that when you can answer an email or missed phone call in the first five minutes, your conversion rates spike dramatically.

Always follow up with prospects after responding. This extra effort can reap fantastic rewards for your private money lending business. Don’t think, “I’ll get back to them later.” Do quickly what competitors are slow to do. Embrace the hustle that comes with running a hard money broker business and beat your competitors to the punch.

Practice being responsive and generate more business. It is said in real estate that one phone call can change a life. A quick response might land that next big client.

Happy customers buy again and again from businesses that treat them right. Being responsive tells the customer that they matter. Successful hard money brokers know that quick response times generate more business and future hard money loans.

Respond quickly to your hard money borrower
Research shows that response time affects a customer’s willingness to buy. Many times the first business to respond gets the business. So respond quickly, as your business depends on it.

Provide Value

Brokers in the private money lending space need credibility and trust to prosper. When customers come to you for help in securing financing, they are taking a chance—especially new clients.

They are relying on you to do what you say and deliver the result.

One way to build that trust is to establish your credibility by providing value.

You provide value in any number of ways, such as providing free information or helping out a prospect even when it might not benefit you. If you only do fix-and-flips loans, but a potential client needs commercial real estate lending, find a way to help. Utilize your network to solve problems for others and the business will follow.

Helping others leads to more money broker business opportunities

Practice Transparency

The real estate investment space is riddled with pretenders and shady characters. Don’t be one of them!

That starts by telling the truth—always.

If a deal looks bad for your client, let them know. They might not like to hear it, but they will appreciate it later. Sometimes you might have to tell a client “no.” It’s just the nature of business.

Disclose your fees and processes. Alert your clients to timelines for necessary paperwork and any problems that arise. Make it as easy as possible for a prospect to make a decision. When you present your numbers, include your fees or any policies you follow to protect yourself in the deal.

Build Trust

Before a client can trust you, they need to know you’re credible. Some questions they might want to ask include the following:

  • How many deals have you done?
  • How long have you been in the real estate investing space?
  • What is your area of focus—fix and flips, commercial, multi-family?
  • What are your rates and/or fees?
  • What other things can you do that make your clients feel confident in investing with you?

Stay Current on Latest Market Trends

Earners are learners.

No one gets to a level of success in anything unless they are continually improving at what they do.

For brokers, this means staying up on trends in private money lending. It means learning about getting the best deals for you and your clients.

Your business can be about win-win. So many people take the approach that for me to win, someone has to lose. But this doesn’t have to be the case in real estate investing. There is room for everyone to succeed.

Make sure to do your best to stay current on the market. How can you expect clients to trust that they’re getting the best deal if you don’t know what’s going on?

Stay up-to-date with economic news, read books and articles about finance, subscribe to industry publications—consume anything you need to be an expert in this field.

Sign up for newsletters, read blogs, and join forums where investors talk about the industry.

A great site for learning more about real estate investing is websites like REIClub.com.

Make a Commitment to Education

There are several ways to become educated about private money brokering.

Take a Class

One of the best ways to learn about becoming a money broker is through taking a class. There are many options out there to choose from and with the rising popularity of online learning, it’s easy to learn from your kitchen table.

Take a Certified Money Broker class

 

Find a Mentor

If you do any reading about individuals who have enjoyed tremendous success, you’ll discover that many of these have had a mentor or two throughout their journey.

In fact, finding a mentor is one of the quickest ways to scale your skillsets.

A good mentor can provide a wealth of knowledge as well as accountability.

Have problems reaching your goals? Mentors will hold your feet to the fire and ask “why?” They will get you motivated to do more and teach you how to avoid the pitfalls they encountered during their careers.

Read Books

As a new broker, you can learn and grow so much through reading. You can acquire master-level expertise by consistently reading books about private money lending, business, and marketing.

Maximize some of your time on your morning commutes by listening to audiobooks and podcasts about how to become a successful money broker.

Watch YouTube Videos

People love videos. Stream it on your phone or through TV. Spend some time looking for a real authority in the space. It is a very easy way of taking in information and will help a broker understand more about the industry.

Get Your LLC

Working in the hard money brokers space comes with requirements. One of these will include registering a business license.

An LLC provides a level of personal asset protection and provides tax benefits.

As a businesses owner, you will want to operate legally under the regulations of whatever state you are doing business in. The first step usually entails registering a business name.

Check with an attorney if you don’t know where to start. There are many legal organizations that will file a business license and all the necessary paperwork for you.

Marketing

When just starting out you need to find borrowers. There is so much money in the real estate investing niche, with many individual investors looking for money to fund a deal. How can you connect with these people?

One easy way is to create a well-designed, professional landing page that talks about your services and provides an email form that prospects can use to ask questions.

Take out Craigslist ads or Google Search ads and drive traffic to the landing page. Collect names and phone numbers and build your list of investors interested in hard money loans.

This is just one example of how to market a private money lending business.

If your technical or marketing know-how isn’t up to the task, look for a freelancer that can help you with your lead generation.

Build Your Customer Base

A successful hard money broker builds a clientele list and regularly engages with that list.

Anyone running a business wants customers to buy again. This is why customer service is so important for money brokers. You want your customers to think of you first when a new investment opportunity arises.

Help clients make money and they will become those regular customers. Find the best rates and loan terms that align with your client’s needs. When this happens, your customer makes money and you make money.

Next Steps

Becoming a successful money broker is about more than just good numbers. It’s also about developing relationships with clients and building trust.

The best brokers are responsive to their borrowers, which means they make time to answer their questions and provide all the information needed to get their loan request approved.

Action Items:

  • Educate yourself and learn everything you can about the private money lending industry
  • Stay current on trends
  • Connect with those in your market and the industry
  • Be transparent and honest with your customers on every deal
  • Be responsive to your clients
  • Build your client network by finding them the best loan for their situation, every time

Want to Learn More?

Be the broker that consistently closes deals. To get there, we offer a comprehensive money brokering course for those looking to learn about the business.

Our classes are taught by experienced brokers and will give you the tools necessary to be successful in your broker business.

Click to learn more today!

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