Where Do I Start With Private Money?

Question

Quick context for me: I'm 28 and purchased my first home (multifamily) in early 2021. The rehab of one unit was very costly, but I've ended up with a homerun with my interest rate and my current equity value. Since then i've kind of stalled and haven't been able to make a move on another property. In essex county NJ there is low inventory and higher interest rates have made it difficult to get back in the game. Also my skin(cash on hand) is relatively low. I can't use a HELOC with my low interest rate, so I was wondering how do I get started with private lending? My credit score is great and I'm driving home a large salary, but I can't seem to save as fast as I was able to last time. Additionally, a lot of the research I've done regardless of my financial situation, has me wanting to go the private lending route if I want to do a BRRR method or something similar to what I've already done. Any advice appreciated!

Nicholas Anderson · Answer

I renovated and finished May 2021. Rented out both units until August 2023 and moved in then. Thanks for the info, I will try this route. Definitely looking for some mentorship as well.

Kerry Baird · Answer

You would leave the underlying mortgage in place, low interest rate and all.  A HELOC is an adjustable rate loan, similar to a credit card, based upon your equity.  They vary from bank to bank.  Some have a 10 year draw and 20 year repayment, others (Navy Federal CU) offers a 20 year draw and 20 year repayment.  You take a draw from the line, pay it off over time.  If you use for future investing, you must remember to include the payments on this loan as well as the loan you get for the future property…meaning, you could easily get in a bind with high payments and not enough rental income.

My thought is to just wait.  Your rents ought to go up slightly over time, as will your salary.  You haven’t had a lot of time yet since the first purchase, and have had a lot of expenses in getting set up.  You will have a tax return that may turn out to be better than you expect, increases in your salary, etc.

Nathan Harden · Answer

"Where Do I Start With Private Money?"

Simple. You start by talking to individuals that have more available capital than you do. You have experience under your belt so that will help you out as well.

It sounds too good to be true but, in all reality, it is just a simple conversation that can start up your momentum.

You only need 1 Yes.

Ethan Gidcumb · Answer

Hey Nicholas, using the BRRRR method you can use a private or hard money lender to fund the majority of the project. If you require funds for down payment and closing costs, you can find private lenders to cover the Gap. I would recommend finding these contacts through BiggerPockets. Some of the clients I have worked with found the most success here and although you also have options such as a Facebook group, other platforms that are not real estate-focused can raise the risk of scams. I hope this helps!

Nicholas Anderson · Answer

Thank you for this.

Edwin Epperson · Answer

@Nicholas Anderson congrats on your first deal, and trying to find a way into the market in your current situation.  To be clear what do you mean when you say, "private lender"?  Three "types" of investment capital, #1 Hard Money Lender, #2 Private Lender, #3 Private Money.  Most people say they are looking for "Private Lenders" when in reality they are looking for Private Money.  I can dive into the nuances later, but the short answer is what type of loan are you looking for and then find the type of lender/ investor that will provide that type of loan.I would suggest that you "Partner" with a private money person, to provide a hefty D.P. think 30 -40% of the purchase, and then using your good credit you qualify for a loan (purchase + construction) or (DSCR).  This keeps you moving forward in building your portfolio, though now you're sharing the equity, and this method allows you to get your "family and friends" invested with you and you can build trust for more projects down the road.Best wishes

Saksham Ghai · Answer

Hi Nicholas,

Hoping you’re doing great. I work as a Transactional Lender and I have access to a abundance of Private Money Lenders ready to take a look and fund your deal asap as long as it’s a good deal! Sending you a private message with my contact details. Please do reach out for more help.

Nicholas Anderson · Answer

Maybe my research is wrong, but wouldn't a HELOC force me to change my interest rate from the 2.5 I locked in to a 7-8% which is common now?

Erik Estrada · Answer

Hey Nick,

May I ask why you can't use a HELOC? Is it because you won't qualify?

Most private lenders will require a substantial amount of skin in the game to lend to you if you are a beginner. As you get more experienced and build a relationship with several deals completed that, skin gets lower and lower.

Andrew Postell · Answer

@Nicholas Anderson some questions here:  do you live in that home you purchased in 2021?  Have you visited any local real estate meetup groups? Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too.  Even facebook might have some good local groups for you.  But post locally for this.  That’s the best bet.

Where Do I Start With Private Money?

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