I want to get a private money lender | Need to know some questions?

Question

I want to be backed by a private money lender so I can go after reo's for now. I just need them to put the deposit down where I would have some time to make moves and find a buyer.

What I want to know is what percentage do I need to promise them on their return for them to be interested. I live in Tampa. Don't know to much about private money right now but I'm ready to learn.

Also is this common? I want to go after short sales and reo's and the lender puts up the deposit. Once I sell the property, I give them the deposit back plus what ever their percentage. To me it sounds like a good deal because I would never need too much money but I also know that some deals will not allow assignment of contracts so they would have to come out of the pocket but hopefully I won't get to many of those.

Joel Owens · Answer

Dennis in my experience what you are proposing is a waste of time. I list REO's and my other colleagues list hundreds of them.

The banks DO NOT allow assigment.No asset manager (who gets paid salary plus a bonus) wants to lock up a property for an assignment to an unknown third party.

The more junk as an investor you put in the contract the more an asset manager will say NEXT !

They want clean deals to get the file off their desk so they can get a bonus.Not have an investor tie up a property for months and then go out of contract because they couldn't find a buyer to close or the one that did want to buy can't.

I am not saying you can never do assigning but the vast majority of times if the property is priced right a cash investor will be all over it OR the asset manager will take a much higher offer from a home buyer who wants to live in the home.Even with the home buyer financing the asset manager will go for that sometimes and take the risk if it nets them more.

Now there are some real piece of crap properties out there that not many want that banks own where you might be able to structure a deal like this.

As far as hard money lenders most that I know want you to have good credit these days.Before they were loaning out on bad credit or no credit when the market was rising.Now they charge much more points and want the good credit so that after rehab the investor can refi into a conventional loan instead of the hard money lender foreclosing on them.

Now in the commercial arena private money,hard money,regular loans,joint ventures are put together differently.

good luck

Don Konipol · Answer

I think what Dennis is wanting to do is borrow the earnest money. With the earnest money deposit at risk this is not a secure lending position backed by collateral. So any asset based lenders are out. A personal loan can be a solution, but of course this entails having a good credit history and being ready to suffer the loss of the borrowed funds.

I don't think there would be too many private investors interested in investing in a potential wholesale deal where they have limited or no control. Someoone with a track record may be able to raise some investor funds. Raising private funds for an earnest money deposit is hard; people investing passively expect the deal "sponsor" to have some "skin" in the game as well as a successful track record. At a minimum they would expect the "sponsor" to utilize his own funds for the earnest money.

The reality is that unless you can raise the earnest money from your own funds, you are probably not going to be able to control any "deal" that you find. You will probably end up as a finder, and hopefully be able to secure a finders fee. I have paid as much as $17,000 to a finder for a deal that ultimately netted me a $155,000 profit - the idea is to find a bargain so good that you have multiple investors interested in obtaining the deal from you. A couple of these size finder fees and you will be able to operated as a principal, keeping a much larger percentage of the profits for yourself.

Successful "finding" of good real estate buys is an art in itself. I have seen some people search for a year and never be able to secure a satisfactory deal, and others hit paydirt on their second day! Develop a game plan of where and how, learn all you can about the market you are specializing in, and be very aggressive in making offers. Most of your offers will be turned down as rediculous, the one out of twenty that is interested is the one you will need to concentrate on.

By the way, an acquantance of mine has been a real estate finder as his full time ocupation since 1982. He riskes only his time, earns a six figure income, has no ownership hassles and is happy earning a small fraction of the potential profit on any deal. This is an unusual case as most successful finders become property owners, no longer have the time to find properties, and thereby make room for new finders.

Dennis Marshall · Answer

I've decided to just do it the ol' fashion way. I will be successful in real estate whether anyone wants to or doesn't want to lend me any money or fund me. It's like drinking water all your life and suddenly getting a taste of sweet juice. I've wondered all my life what I would do to become successful and this is it. I appreciate everyone's input. I hear and understands everyone's point. Eventually, investors will be knocking down doors to do business with me but until then, I just have to do what I have to do. Thank you everyone

Vikram C. · Answer

Chris, we are not talking about a hard money loan here. We're talking about an equity partnership. To be honest, even if I get 50% of the profits, I will be reulctant to invest unless the "borrower" brings me a really great deal.

Also, what's a lot and what's little really depends on the nature of the deal, the abilities of the borrower, etc. Finally, it is really an issue of demand and supply, isn't it? If the borrower can find other sources of funds at a lower cost, he will prefer that to my funding. If I can find other places to invest my money with higher returns, I would do that.

Christopher W. · Answer

50% seems like a lot if you're just providing the money and nothing else. 70% is just plain ridiculous. The only way I could see those numbers is if you are providing something in addition to the money - maybe walking someone through the deal as a teacher/student relationship. 10%-12% seems to be the standard for people that know about real estate. Maybe even less than that if private lenders are comparing it to bank rates.

Bill Gulley · Answer

Tom has the first point of concern covered! What's your record. But this is not addressing your first deal, which is the hardest.

First thing to do is to assess your deal carefully. Let's assume you have nothing to put in this, so what you're doing is basically acting almost like a birddog for another investor. Keeping your deal is the key, since many will try to take half or more of your deal.

You need to make it easy for the lender to get his money back and sweeten the deal. If you know your buying at 30K it need 20K in rehab and a conservative FMV is 80K you need to look at the potential profit and work out a split over the retun, IMO. In other words, pay the lender X% on his money, then a percentage of the profit up to a certain amount. In this example, offer to pay 12 maybe 14% plus 20% or 5K, which ever is greater. That's for short term deals, like 90 days or less.

If you do deals for longer periods you may increase the % split, but as that goes up, the rate needs to go down (even though a percentage of the savings will be going back to the lender.)

At 50%, that becomes a joint venture arrangement, not just a lender position, that amount for just lending the money on a secured basis, the lender needs to wear a mask! At that rate, the lender needs to put up more than money, if there is other financing, they need to go on the hook too! They should be taking care of all the financing requirements and you should not be on the hook for their capital in the deal. What you provide would be getting the deal, rehabbing it, managing it and maintenance. That's something to shoot for, and you can give away what you need to to make the deal.

Always have several of these types of lenders/partners to go to. If you only have one, you can't negotiate, but the lender can!

Usually, "investors" that do this many are pretty much out for blood, IMO. While there are some fair and reasonable lenders, most to me are sharks. I never paid more than 10% on deals, nor more than 20% when they had nothing more to do than put money in a deal. They more they could do, the more they got. Now, that's not to say 14% or even more over a short term is not a bad deal, pretty easy to payout 4 more per cent on a 90 days deal without much pain.

Start with individuals that have money that may never have done a real estate deal. Talk to stock brokers, insurance agents, doctors, densists (one of my favorites, lol) and attorneys! Attorneys are easy to deal with, they know you'd never try to rip them off (and better not try either). Be prepared to do exactly what you say you will do. As Tom pointed out above any lender is first concerned with getting their money back.

Walking in on a deal. be careful that you can meet the obligation. Many investor/lenders are really after the whole deal, allowing you to overload your mouth, get you in a contract that is difficult to accomplish, then when the work is done simply push you out of the way.

They can't be both a lender and a partner. Anyone who trys to lend money and secure it with a DOT and then cut another deal to share in your profits can have a problems if the deal goes south and they participated in the management or directed requirements for the deal. They can be seen as preditory real quick, as if they set you up to fail. So, take care in selecting who you offer an opportunity to.

And, lastly, finding a lender is usually done by newbies with the wrong approach. If you go out begging for money, including some of the solicitations I see on these sites, you may appear desperate. That's when the vultures circle. You need a different frame of mind!

I have the deal, I have the means to make this deal with a profit and you have the opportunity to make some money with me. Keeping a possiblle lender is a subordinate frame of mind, that you are in charge will allow you to negotiate instead of beg and accept. Who has the upper hand here? That's why you need more than one, let them know others are interested if they really are. Don't lie about it because many will say "use them", so be prepared to hear that.

But, you'll be far ahead if you develop a source of funding from non real estate types looking for a better return on their money. If you can't find such people initially, use those in the business of lending. One more comment, even and perhaps espeically conventional lenders may not be cheaper than a hard money lender, especially in the short run. Loan costs and other requirements can cost you dearly if funds are only used for a year or two, HMs maybe just as competitive, slightly more and alot easier to use than many banks. Good luck, Bill

Dennis Marshall · Answer

Vikram I'm not discouraged...LOL. Didn't mean to come off like that. I just realize that I'm new and a lot of investor would think not twice but 3 or 4, maybe 5 times before dealing with me. It's understandable. I want to say that when I get to the status where i'll be a hot comodity, that i'll remember where I came from and set aside funding especially for new investors who were once in my shoes. Money that I would care less about losing. They say it's all about who you know and I want it to be a privilege to know me.

I have so many ideas and many are going to change the way we wholesale but I have to get established before I let my ideas out. Believe me. You will one day here about me.. LOL.

So no. I'm not discouraged at all. Just a wake up call that I have to work twice as hard to get what I want. Thanks for the advise though Vikram. It is very much appreciated

Vikram C. · Answer

Good luck, Dennis. I did not mean to discourage you - I was just giving you an idea about the terms that I would expect if I was financing a deal.

Also, water is healthier than sweet juice.

Chris C. · Answer

I would agree with Joel's comments. Remember it is very competitive out there (borrowers) right now. The lenders are cherry picking all over the place. Chris

Christopher W. · Answer

Ok I think I see what you are saying, but if this was a partnership wouldn't you be involved in the managing as well? If you were just bringing the money wouldn't this be more like a private money loan?

I want to get a private money lender | Need to know some questions?

I want to get a private money lender | Need to know some questions?

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