Hard Money Mastermind Inner Circle Recap – Tampa 2024

This week, we’re discussing something a bit different. I recently spent time in Tampa attending a Hard Money Mastermind Inner Circle event. It was hosted by Chris and Jason, who are well-known for their podcast on hard money lending called the Private Lenders Podcast. Every six months, they organize a gathering where you fly out for a 2–3 day mastermind, giving insights to successful private and hard money lending. This was my first time attending, and it was an incredible experience.

I wanted to share the format, key takeaways, and some insights I gained from the event. I took about four or five pages of notes, so I’ll condense it into a digestible summary. The event was in Tampa, which was a good distance from my home in Idaho. I’m not a huge fan of travel—it always seems to throw me off a bit—so after a long flight and some delays, I didn’t arrive until 2 AM on Tuesday.

MasterMind Inner Circle Beginning

On Wednesday, before the event kicked off, I spent the day golfing with a friend who lives in Tampa. We played at the Bel Air Country Club, which was one of the nicest courses I’ve ever been on. The pristine greens and breathtaking views made the experience unforgettable. Afterward, I met up with other attendees, including Chris and Jason, as well as several notable lenders like Joe Lieberman and Danny Pelosi. (You can find him on Instagram or visit his website!)

The next morning, we gathered for the official event, which began on Thursday. The format was interactive and collaborative. Everyone prepared a 30-minute presentation focusing on one of three components: Brag, Share, or Ask. “Brag” was about showcasing professional achievements, “Share” involved offering helpful tips, and “Ask” was for seeking advice on challenges in your business. It was fascinating to hear how others run their operations.

Chris and Jason’s presentations were longer—about an hour to an hour and a half each. Jason covered the front-end operations, like vetting loans and onboarding borrowers. Chris focused on the back-end, such as managing investor capital and handling defaults.

It was a great learning experience, and I want to share the top 10 key takeaways from the event.

1.) SFR Analytics

First and foremost, I learned about a service called SFR Analytics, a data company that provides valuable insights into closed loans in your market. The service is relatively expensive—ranging from $500 to $1,000 per month—but it’s packed with data. You can access lists of borrowers, property addresses, and information about the lenders they’re using, whether it’s a large institutional lender like Kiavi or a local company.

This is a great opportunity to target potential borrowers. If you notice someone using an institutional lender like Kiavi and they’re unhappy with slow service or long closing times, you can reach out. Offer them a more personalized experience, faster closings, and competitive terms as a local hard money lender.

Many of us, myself included, experience “small pipeline syndrome”—where we only have a few deals coming in at a time. Increasing lead flow, potentially through a service like SFR Analytics, could help me build a larger, more consistent pipeline and cherry-pick the best opportunities.

Increasing lead flow, potentially through a service like SFR Analytics, could help me build a larger, more consistent pipeline and cherry-pick the best opportunities.

2.) Strategic Follow-Up

The second key takeaway came from Angela at Rehab Wallet, a powerhouse in the space with a $100 million fund. One simple but effective tip she shared was related to managing draw requests. They have a team member dedicated to compliance, including overseeing draw requests. Every 45 days, if a borrower hasn’t made a draw request, they get a follow-up phone call. This is a great way to stay on top of the project’s progress—if no funds are being drawn, it likely means the project isn’t advancing as expected.

I really liked this approach, as it’s a quick check-in to ensure everything is on track. I’m planning to implement a similar strategy by integrating this into our software automation, Lendr. Lendr is a platform we use to manage our loan portfolio from origination to servicing. I’ll set up alerts for any missed draw requests within the 45-day window. This will ensure that I proactively reach out to borrowers when needed.

3.) Review Title Commitments

The third takeaway came from Harris, the attorney for Hard Money Bankers, who handles their loan documents and title reviews. I was talking with him one evening, and he shared an important insight about title commitments—something many people overlook: they don’t thoroughly review them. One advantage of using an attorney is that they can spot potential issues in the title commitment that others might miss.

Harris explained that title companies, being insurance providers, aim to minimize risk. As part of this, they often include a clause in title commitments stating that they don’t cover the gap between the title search and the recording of the deed of trust or mortgage. If this clause appears, it’s something you can request to have removed. Many people don’t notice it and let it slide, but this clause can be critical.

He shared an example where, after the title search, someone filed a deed of trust, putting them in a second lien position. If not for removing this clause, the lender would have been liable for the second lien. This was a valuable lesson, and I’ll definitely start reviewing title commitments more carefully to ensure everything is in order.

4.) Default Indicators

The fourth key takeaway came from Chris on day two, where he discussed defaults. Based on their experience with thousands of loans, he highlighted a critical warning sign: a borrower with a low credit score and a large construction component—typically over $100,000—is a high-risk candidate for default.

Chris explained that borrowers with low credit scores often struggle with managing their personal finances. When you add a large renovation project into the mix, it amplifies the risk. If someone can’t manage their household budget, it’s unlikely they’ll successfully oversee a complex, expensive construction project.

If someone can’t manage their household budget, it’s unlikely they’ll successfully oversee a complex, expensive construction project.

I reflected on this and realized how relevant it is. Our largest rehab project to date was around $185,000, which was a significant lift. It involved rebuilding almost the entire house. Without proper experience or financial discipline, taking on a project like that could lead to trouble. This insight is something I’ll definitely keep in mind when assessing future projects.

5.) Primary Residence? NO

The fifth takeaway was an important red flag which came from Chris. He said that if a borrower is flipping a property that is noticeably nicer than their primary residence, even if they claim they won’t move into it, chances are they plan to. This is a major concern because, as a private lender, you cannot issue a loan on a primary residence due to housing regulations and laws, such as the Primary Residence Housing Act. Getting involved in that area is risky and best avoided.

To protect yourself, make sure the loan agreement clearly states that it is for investment purposes only. Not for a primary residence. Additionally, have the borrower sign an affidavit confirming the use of the funds, the property’s intended purpose, and their exit strategy. Chris has seen this happen often. Some borrowers may claim the property is an investment, but if it’s significantly nicer than their current home, they’re likely planning to move in. This is definitely something to watch out for.

6.) LLC Age

Chris shared an important red flag to watch out for: if you come across an LLC that was formed within the last week, it’s often a cause for concern. While this might seem like an obvious warning sign, it’s something I hadn’t really considered before.

Many people may think, “Okay, they’re just getting started in the business,” but a new LLC can signal potential issues. If you notice that an LLC is only a few days or weeks old, it’s worth digging deeper. It could indicate the borrower is trying to quickly establish a business for a specific project, which might be risky. This is definitely something to keep in mind when evaluating deals.

7.) Cash-Out Refis

An interesting insight from Chris was about cash-out refis—he mentioned they have a higher likelihood of default because there often isn’t a clear exit strategy. I found this really insightful.

While we’ve done cash-out refis in the past, Chris’s point resonated with me. The few defaults we’ve experienced were on cash-out refis, precisely because there isn’t always a solid plan for repayment. Borrowers often say they’ll sell or pursue another option, but as the loan term nears its end, it’s unclear how they’ll exit.

I’m now thinking about how we can better manage this risk in our business. While I’m not sure what changes we’ll implement just yet, I’m going to make it a priority to actively consider and address this issue moving forward.

8.) Don’t Be Greedy

One quote that really stuck with me at the conference was, “Pigs get fat, hogs get slaughtered.” It’s a simple reminder not to be greedy.

“Pigs get fat, hogs get slaughtered.” It’s a simple reminder not to be greedy.

In this business, it’s easy to start seeing borrowers as just dollar signs or a way to rack up points. Some lenders add on excessive junk fees, commitment fees, and other charges, quickly tacking on thousands of dollars. While we all need to make a profit, it’s essential to provide legitimate value. When greed starts driving decisions, problems arise in your business.

In our own company, we don’t charge many fees, but after attending this conference, I’m considering adding more to increase revenue. However, I’ll be mindful to avoid overcharging, like those who ask for $2,500 commitment fees with little justification. It’s a good reminder to balance profitability with fairness.

9.) Quitclaim Deed

At one point, I had heard about lenders having borrowers sign a quitclaim deed at the closing table, which they would hold onto as an insurance policy. The idea was that if the borrower defaults, the lender could record the deed and take possession of the property without going through the foreclosure process.

I had always thought this was a solid security strategy. However, Harris, the attorney at the conference, shared his experience, stating that this approach is likely not enforceable in court. The foreclosure process exists for a reason—it gives borrowers the opportunity to keep their property if they have capital invested. You can’t just bypass this process by filing a quitclaim deed and taking the property back.

After hearing this, I’ve decided to avoid using quitclaim deeds in our business, although, as Harris mentioned, it can still serve as an additional “insurance policy” in certain cases.

10.) NSF Charges

Lastly, a big takeaway for me was the NSF charges (Non-Sufficient Funds). Jason and Chris shared that every month, they inevitably encounter NSF kickbacks when they request payments from borrowers via ACH. Essentially, some borrowers don’t have enough funds in their accounts to cover the payment, leading to a failed transaction.

To address this, they started charging a $100 fee for each NSF. It’s not an exorbitant charge, but it serves as a motivational tool to encourage borrowers to ensure sufficient funds are available. While I don’t currently collect monthly payments from borrowers, this may be something we incorporate into our business in the future.

One thing I learned is that if you’re not careful with net asset values and interest accrual, your margins can shrink over time. These are valuable lessons, and I’m excited to apply them. I took away a lot from the conference, and I hope these insights are helpful to you too.

…if you’re not careful with net asset values and interest accrual, your margins can shrink over time.

There’s another mastermind event in May, which I look forward to attending again. It was incredibly valuable connecting with people across the country who are in the same niche business. It can be a lonely journey, so being in a room with others facing similar challenges was both refreshing and insightful. I’m grateful for the new friendships and the lessons I learned.

Thanks for following, and I look forward to sharing more next time!

 

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