Newbie Investor Lending Question

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Newbie Investor Lending Question

Jordi Valado
Member since 2021 · 37 posts · 14 votes

Hello everyone, I am Jordi a new investor to the real estate game. I am looking to do buy and holds in the midwest, this would be outside of my home state NJ. I have heard many investors speak about using Other Peoples Money (OPM). I understand this comes from a Private Money Lender (PML) or a Hard Money Lender (HML). As a newbie investor my approach to this is to connect with PMLs via facebook groups, REI meetups, BP forums, and asking family and friends. How would a newbie investor like me connect with PMLs on using their money to invest in Real Estate, even though I have no prior experience? I was thinking of making some sort of financial report that outlines costs and their potential return on the investment. This would show I am serious and have some structure or timeline for a PML to have the confidence to trust me with their money. A PML would help me get the down payment for a property, then use a HML to cover the rehab portion. This is depending on rates and structure of the deal. Additional question, would it be smarter for a newbie investor to use a PML or HML?

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Bob ReinhardBusiness Member
Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
4y
I If I certainly appreciate your enthusiasm. If I understand you correctly what you are looking to do is take a loan for the down payment and then another loan for the remainder of the purchase and the rehab. This would essentially have you have 0% as your stake in this transaction.  This has, essentially, a 0% chance of obtaining funding.
Next, it is highly unlikely that any investor will permit a second mortgage nor will any hard money lender permit a first mortgage ahead of it.  Therefore 2 loans on the property are also unrealistic.
As for the mechanics and the number aspects in terms of percentages and amount down payment and adown payment and I'm on purchase money mortgage and I'm out rehab I will leave this for others to offer their expertise.
Much success.
Bob
[email protected]914-861-5501
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  • Bob ReinhardBusiness Member
    Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
    4y
    I If I certainly appreciate your enthusiasm. If I understand you correctly what you are looking to do is take a loan for the down payment and then another loan for the remainder of the purchase and the rehab. This would essentially have you have 0% as your stake in this transaction.  This has, essentially, a 0% chance of obtaining funding.
    Next, it is highly unlikely that any investor will permit a second mortgage nor will any hard money lender permit a first mortgage ahead of it.  Therefore 2 loans on the property are also unrealistic.
    As for the mechanics and the number aspects in terms of percentages and amount down payment and adown payment and I'm on purchase money mortgage and I'm out rehab I will leave this for others to offer their expertise.
    Much success.
    Bob
    [email protected]914-861-5501
    1Reply
  • Jordi Valado
    OP
    Member since 2021 · 37 posts · 14 votes
    4y

    Hi Bob I appreciate the reply. This makes a lot of sense, you are right a 0% skin in the game doesn't look good to any lender. Please tell me if I have this wrong. So instead of having no skin in the game, I was thinking of putting part of the down payment on a conventional loan. Let's say 1/2 of the down payment and have a PML cover the rest of the down payment. Then look for a separate HML for the rehab. I would make sure the required rehab isn't a large expense.

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  • Bob ReinhardBusiness Member
    Lender · Patterson, NY · Member since 2017 · 488 posts · 186 votes
    4y
    Again, if I count correctly, you are looking for two different lenders for the property at the same time. This will never happen. Neither will subordinate its position to the other.
    Perhaps if family/friends join with you, you'll reach an 70-80% down-payment threshold  and then only 1 loan may be needed. Of course, other things beyond the scope of your post come into play too.
    [email protected]914-861-5501
    0Reply
  • Michael Scott
    Real Estate Agent · Pittsburgh, PA · Member since 2014 · 81 posts · 56 votes
    4y
    Quote from @Jordi Valado:

    Hello everyone, I am Jordi a new investor to the real estate game. I am looking to do buy and holds in the midwest, this would be outside of my home state NJ. I have heard many investors speak about using Other Peoples Money (OPM). I understand this comes from a Private Money Lender (PML) or a Hard Money Lender (HML). As a newbie investor my approach to this is to connect with PMLs via facebook groups, REI meetups, BP forums, and asking family and friends. How would a newbie investor like me connect with PMLs on using their money to invest in Real Estate, even though I have no prior experience? I was thinking of making some sort of financial report that outlines costs and their potential return on the investment. This would show I am serious and have some structure or timeline for a PML to have the confidence to trust me with their money. A PML would help me get the down payment for a property, then use a HML to cover the rehab portion. This is depending on rates and structure of the deal. Additional question, would it be smarter for a newbie investor to use a PML or HML?


     I would highly recommend listening to the BP Real Estate Podcast episode 636 https://www.biggerpockets.com/... and episode 637 https://www.biggerpockets.com/... These are a great resource on private money and how to implement a strategy in telling people you're looking for money to fund real estate deals!

    1Reply
  • Andrew Garcia
    Lender · Charlotte, NC · Member since 2022 · 739 posts · 410 votes
    4y

    Hi @Jordi Valado, OPM does not necessarily come from PMLs or HMLs. 

    Typically, PMLs only lend to people once they have a proven track record. HMLs do not care as much.

    It sounds like you are going for a BRRRR or a flip. In that case, you should get a fix and flip loan for 80-85% of the purchase price + rehab.

    Then, do this a few times and you will have a relationship built with the lender causing you to get better rates and terms.

    If you do not have the down payment, connect with some local investors and bring the numbers to them.

    They will decide whether to come on as an equity partner or not.

    This should help you get a few under your belt while building up capital.

    From there, you can take it on your own.

    Hope this helps! Let me know if I can be of any assistance.

    1Reply
  • Jordi Valado
    OP
    Member since 2021 · 37 posts · 14 votes
    4y

    Thank you Andrew! This helped tremendously. I will look into this loan and connect with lenders for different rates! 

    0Reply
  • Jordi Valado
    OP
    Member since 2021 · 37 posts · 14 votes
    4y
    Quote from @Michael Scott:
    Quote from @Jordi Valado:

    Hello everyone, I am Jordi a new investor to the real estate game. I am looking to do buy and holds in the midwest, this would be outside of my home state NJ. I have heard many investors speak about using Other Peoples Money (OPM). I understand this comes from a Private Money Lender (PML) or a Hard Money Lender (HML). As a newbie investor my approach to this is to connect with PMLs via facebook groups, REI meetups, BP forums, and asking family and friends. How would a newbie investor like me connect with PMLs on using their money to invest in Real Estate, even though I have no prior experience? I was thinking of making some sort of financial report that outlines costs and their potential return on the investment. This would show I am serious and have some structure or timeline for a PML to have the confidence to trust me with their money. A PML would help me get the down payment for a property, then use a HML to cover the rehab portion. This is depending on rates and structure of the deal. Additional question, would it be smarter for a newbie investor to use a PML or HML?


     I would highly recommend listening to the BP Real Estate Podcast episode 636 https://www.biggerpockets.com/... and episode 637 https://www.biggerpockets.com/... These are a great resource on private money and how to implement a strategy in telling people you're looking for money to fund real estate deals!

    Thank you Michael, I will give those a listen now.
    0Reply
  • Michael Kinsella
    Lender · Member since 2018 · 617 posts · 275 votes
    4y

    How would a newbie investor like me connect with PMLs on using their money to invest in Real Estate, even though I have no prior experience?

    Likely through meeting them at local REIA events or through similar in-person avenues. Some PMLs may not have prior experience requirements, particularly if they are more asset-focused and know the local market very well.

    A PML would help me get the down payment for a property, then use a HML to cover the rehab portion

    It doesn't work like this. Both PMLs and HMLs provide debt financing. You are responsible for the down payment.

    For example, let's say that a PML or HML agrees to cover 85% of the total project cost on an acquisition + rehab...

    You would be responsible for bring 15% of the total project cost to closing. In addition, since construction/renovation financing is almost always done on a reimbursement basis, you would be responsible for the initial capital outlay.

    Additional question, would it be smarter for a newbie investor to use a PML or HML?

    It depends on the terms you're able to get. 

    Getting to know PMLs is probably best done through in-person events, while you can search for reputable HMLs on BiggerPockets; using the Network --> Hard Money Lenders tab on BiggerPockets is a useful starting point.

    Hope this helps,

    Michael

    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 656 votes
    4y

    Anyway you slice it this game takes $$$$.  A true Private Money Lender already has investors in his pockets and they have strict parameters for loans.  Honestly, for a new investor to come into the game and just land this dream Private Money Guy. that is just funding any and all purchases for you without all the non-owner occupied guidelines and interest rate charts is a pipe dream.  It may exist but so may unicorns.  I've talked to real private money lenders.  It usually involves a fund that is put up by several investors, but they too have an underwriting team and guidelines.  Sometimes more stips than other loans.

    The best route for a new investor, and this is just my opinion, is to use the product that has the most short-term benefit to you.  That's the fix n flip loan but don't hold.  Sell.  Constantly recoup that deal money with the profit and keep rolling it over into more deals.  Build capital.  Build experience and then step-up your as-is value range and be able to handle more than 1 deal at a time and then start holding when you can pick up a 4 unit building for 650k and you need 130k for your portion of the down payment and now you have it.

    Can't start your career with a grandslam in the World Series with two outs and the bases loaded.  Gotta pay your dues.  Just keep that in mind.

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