Finding Private Lender

[Kimberly Arington]

Hello everyone, I have to start somewhere. I have a duplex that was passed down to me from my dad. I have that up and going, now Im interested into buying a multifamily unit. I've attended REIA events and other meetups in person and online. Have another event on Saturday but I never can run across any private lenders. Seem like everyone is starting off like myself at these events. Could anyone point me in the right direction to where I have not been seeking. I have multifamily deals given to me daily!!! No assistance with funding so I end up losing out. So are there any other locations to seek private lenders?

[Gary Brown]

Hey Kimberly you are not wrong! a lot of local events draw to newbies because that's where they can get knowledge, it may be misguided but some industry pros just keep busy and don't network in person like they should. A couple things to note if you are going online to look for private lenders... there are differences in expectation depending on who's calling themselves a private lender.

First are the true private money lenders that lend their own money from a retirement account or want to put cash to work and earn interest and points to local investors that they know and trust.

Next are private lenders that have raised capital for their fund and underwrite deals based on more stringent criteria. They also may be more professionally organized, for instance a company that specializes in bridge loans, fix and flip loans, and DSCR loans are considered private money because of where their capital came from vs. a credit union or a bank.

There are advantages to using either. It just depends really on the deal and how many deals you are looking to do. Hope this helps, happy to connect and chat about your multi family goals

[Miranda Holland]

If it's your 1st deal and you're not able to raise money from your family and friends, your best bet might be to start off working with private lending/ hard money lending companies. 

After you build a portfolio with them, you'll be more credibility to approach individuals who want to invest passively in your projects. 

[Ryan Lockstein]

So I'm going to answer your question based on my experience.  I'm sure there are better ways but here is how I did it.

On my first rehab deals I used HARD MONEY.  I know it is not quite as cool and attractive as PRIVATE MONEY but easier to find and get for your first/second deal.  The underwriting for hard money is kind of a pain and the terms vary a lot but you do what you have to do to make it work.  Once you have done a couple deals and have a proven track record getting PRIVATE MONEY with better terms becomes much easier.   

At this point you will be confident enough to lock up a contract on a property before you have the money lined up (since you can always go back to hard money or wholesale it worst case).  Once you have a contracted deal you can ask other experienced investors who they are using (you will be surprised how many of them lend private money themselves) and pitch them your deals and experience.  Once you find one, rinse and repeat.  

[Account Closed]

Hi Kimberly, 

Have you considered hard money lending? The interest rate can be a bit higher but it tends to be easier to access if you use the right company. With that said, for my friends first flip he contacted a co-worker and was able to access money from the friends IRA. He also, took out a HELOC on his home to cover the additional costs. If you would like information on a hard money mortgage brokerage message me.

[Alex Breshears]

As a private lender, I'm going to tell you people like me are more lurkers than coming outright in a REIA meeting and saying we have capital to place. In addition, some active investors will also be private lenders because they will lend out their retirement account capital to other people's deals, while they are working on their own deals. So chances are everytime you are in a room with real estate people, you are in the room with at least one person who has done a private loan. I am the co author of BiggerPockets newest book - which is all about private lending! From the active investor stand point this is the manual to explain to people in your network HOW you as a borrower will protect them, structure the loan, etc. Private lending in this sense is far more relationship based than transactional.

Now just to muddy the waters, hard money lenders are re-branding themselves as "private lenders" or "direct correspondent lenders", which is very different from what I do as a private lender.  Their capital comes with a lot of strings attached and are functionally similar to a hard money loan process.  They have an underwriting criteria created for you as a borrower to check the boxes. If you can't check the boxes, they can't do the loan. Where as working with an individual like myself, or other private lenders, you have a greater degree of flexibility in terms and the type of property you may acquire with private capital.  So if you have someone reaching out saying they are a private lender and they lend in all 50 states, chances are great that is actually a hard money loan company. They are great, they have their place in the marketplace. Think of these different lending options as tools in a tool belt.  Yes you need a hammer and a sledge hammer to do some demo - but I'm not going to build a deck with a sledge hammer.  Just pick the right tool for the right job, so knowing what those tools are, and their functionality and purpose is crucial for leverage in real estate.

If you want to find out more about private lending in the sense I am using it you can check out the BiggerPockets book:

https://store.biggerpockets.co...

Good luck!

[Bob Reinhard]

As a number of many REIAs and MeetUps, as whoever runs the event for names. Also look through membership lists for the niche area.

A point was eell mades about lurking lenders ;)

Much success
Bob

[Erik Estrada]

Quote from @Kimberly Arington:

Hello everyone, I have to start somewhere. I have a duplex that was passed down to me from my dad. I have that up and going, now Im interested into buying a multifamily unit. I've attended REIA events and other meetups in person and online. Have another event on Saturday but I never can run across any private lenders. Seem like everyone is starting off like myself at these events. Could anyone point me in the right direction to where I have not been seeking. I have multifamily deals given to me daily!!! No assistance with funding so I end up losing out. So are there any other locations to seek private lenders?

 A lot of Private Money lenders will require experience. Hard Money lenders are a lot more lenient but charge more in fees and you will definitely need an exit strategy. Is there a specific reason why you want to use private money? 

[Jeff S.]

Wow, the made-up definitions here could drive you crazy. I’ll guess, @Kimberly Arington, you’re not concerned that the lender's money is coming from their retirement plan or what title they call themselves. Legally there is no difference between a private money lender, “true” private money lender, hard money lender, asset-based lender, correspondent lender, bridge lender, warehouse lender, white paper lender, or any of the myriad terms you’ll see floating around. “Private lender,” is a good enough, all-encompassing, generic term everyone understands and something the industry is (unsuccessfully) trying to settle on.

All that when it appears you’re just looking for is money!!! Whew.  Here's some advice I hope is actionable.

Your situation is strange because out here you can’t toss a stone into a real estate club and not hit a private lender. It might be easier if you call some of the local multi-family real estate club organizers and ask who frequently attends their club as well as who has the best (or worst) reputations. Here’s a list of what appear to be more specialized multi-family clubs near Dallas from Meetup.com that might help you. I’d call or attend those first since multifamily seems to be your focus. When you find someone, visit their office and/or take them to lunch. I know it’s overstated, but this really is a business based on relationships.

Alternately, Scotsman Guide and the lender list at the American Association of Private Lenders (full disclosure, we’re members) might also be a good start though there’s nothing better than meeting your lenders face-to-face. Note you can specifically select a multi-family search.

As a warning, stay away from Craigslist, Facebook, LinkedIn, Connected Investors, and the like. These are unvetted and crawling with scammers. Do you know how to tell the difference between a legit lender and a scammer? Please let us all know when you figure it out. Note that the lender list on BP is also unvetted. There are just too many face-to-face avenues to find honorable lenders than to take a chance with online strangers.

Understand that a lot of banks lend on multifamily properties, and they might be your better bet. I’d start there first.

Best of luck to you, Kimberly.

[Bruce Lynn]

#1...I always ask....why private money vs bank money?   You'll get much better terms with bank lending.

Look to see if Quest is having any events.  Their events tend to draw from their list of SIDRA clients who may have money to lend.  Their office is in North Dallas/Addison area and BC-Before Covid they used to have classes and networking events...sometimes 100 people or more showing up.  Some of those have money to lend.

Bring your deal(s) for a quick evaluation.

Is there a chance you can get conventional lending?  Typically that will be more cost effective than trying to use private money.

Private money on your first deal may want to see 10-30% down from you and charge somewhere between 9-12% interest to take a chance on you, until you build up your track record.  You will also probably have 1-3% origination fees...so private money ain't cheap money.  They'll want to see that you have significant skin in the game.  Much of this money is retirement money for the true private lenders, so rest assured they will be very very careful of who they lend their money too, and the safety of the deal for them....and it will have to pay them more than they could get with safer alternative investments.

Maybe you can reduce some of those costs if your first duplex is paid off and you're willing to use that as collateral.

Can you borrow today against the duplex?

If the deals you are finding are really good and the numbers work, you might look at DSCR loans. One of my preferred lenders has a great DSCR product. Don't pay any fee up front, other than appraisal fee when you are well into the loan for private money. Lots of scams out there.

[Bob Willis]

@Kimberly Arington - I have a question for clarification, what do you want to do with the hard money? Generally hard money lenders measure their loan term in months not years. Is that what you are looking for? Just curious about your strategy when you say you have multifamily deals given to you daily, do you plan on buying and holding, fix and flip, what? Your strategy regarding these opportunities should determine the appropriateness of hard money. Best of luck.