I am interested in starting a discussion about what folks who have provided private loans have learned. To start it off here are my observations.

1. The borrowers are not always that smart. They will do dumb things rather than switch to plan B when their main plan is not working.

2. Funding deals many times means educating the borrower as to how a loan works. I am talking about rehab projects or otherwise where the person is effectively borrowing on hard money terms. Many times the newer investors want the lender to take on a lot of the risk.

3. The paperwork is pretty straight forward as there is a lot of history out there to depend on.

4. Borrowers who do get it have a repeatable process and will come back for more. That said they still seem to bump into things every now and then. The biggest issue is when they are good at one skill but not at the full process from start to finish. Many they can manage property but they do not know how to manage a large rehab project. Or just the opposite.

5. It is easier to be remote when a lender than many other forms or RE investing. When borrowing from a private lender you are buying for a fixed price a partner who has clearly agreed the role they will play with no strings.

6. Here is a funny one. Many potential borrowers find hard money rates and points to be very expensive. In some ways they are correct. The number of times someone will then offer to split the profits so they can save money makes me laugh. Either they do not believe in their deal, the deal really is not a good deal or they do not recognize that a silent partner at 15% plus points is better than a full voting partner who gets 50% of the profit. For the most part they do not do the math. They focus on the headline numbers and assume sharing half the profit has to be cheaper.

Like all of us knowing what you are good at and contracting out the balance seems to be the key.

John Corey