Experienced rehabbers and private money lender coaching/mentoring

Private Lending & Conventional Mortgage Advice
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Experienced rehabbers and private money lender coaching/mentoring

Jason Topolski
Weehawken, NJ · Member since 2014 · 8 posts · 3 votes

As a beginner private lender I would like to minimize the risk of borrower defaulting on their investment by learning from an experienced rehabber who's skilled at evaluating numbers for property purchase, rehab and sale.

I've noticed some of the more senior forum members are very willing to offer advice/mentoring. Should I target other, more senior private lenders for advice, or look for an experienced rehabber as my mentor?

Jason.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y

@Jason Topolski

Jason you may want to start with a very good reputable HML that will bring deals to you and help you with due diligence they make points you make yeild

Look for quality properties and quality fix and flippers as well. stay out of war zones by and large.

that would be my advice

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Jason Topolski

    Jason you may want to start with a very good reputable HML that will bring deals to you and help you with due diligence they make points you make yeild

    Look for quality properties and quality fix and flippers as well. stay out of war zones by and large.

    that would be my advice

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  • Lenny LongoPro Member
    Real Estate Broker · Ellenton, FL · Member since 2010 · 101 posts · 23 votes
    12y

    For larger private lending deals I have heard lender's using building control services and passing those costs onto the borrower... Builder control services has many services such as going over the scope of work and comparing it to the walkthrough of the house that they do. They will even review work done before draws are paid and much more similar stuff...

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  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2008 · 1k+ posts · 218 votes
    12y

    It all comes down you how you plan your risk. what you are willing to lend on, how you want to do business, and what returns you want to make.

    I will advise one of my favorite sayings, "Pigs get fed, hogs get slaughtered". If you want really high returns, think about this. What kind of person is willing to borrow at such costly numbers? Usually someone that doesn't have access to it elsewhere, thereby more than likely being new and inexperienced themselves.

    There are ways to protect yourself, but sometimes to many layers of protection make the money more "Hard to get" and scare of those that value the speed of the transaction. You must find that happy medium. If you goal is to just make a solid steady return, then you want to find someone that has a history of constantly having projects going. The minute someone pays you back your loan, you stop making money on it. Whereas if you have say one or two people that you lower your rate to, keep the money moving, your overall combined return will be much higher than if you do one here and there with people.

    I used to do HML. It was solid. I found out what not to do, what to do, and that repeat business was worth taking a little less in return for, because it was safer, and kept the money moving constantly.

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  • Jason Topolski
    OP
    Weehawken, NJ · Member since 2014 · 8 posts · 3 votes
    12y

    Thanks all for your advice. @Jay Hinrichs - if I go with a HML, whose name appears on the Deed of Trust - the HML or mine? In another words - am I just adding to their pool of money and they lend it out or do they act as a middleman between the private lender and the borrower? If it's the latter, and if the HML had a good deal - wouldn't they lend the borrower themselves?

    Jason.

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  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2008 · 1k+ posts · 218 votes
    12y

    @Jason Topolski - What are you wanting to do? Because you can do what you want. Have you thought about why you are doing this and not some other type of investment?

    Have you thought about the rate of return you would like to see? Do you feel better about lending short term, intermediate term, or long term?

    Would you prefer lending on a project close to you geographically so you could monitor the progress?


    You can answer there here, but the key is to answer that to yourself. Once you have that, you can move forward more readily.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Jason Topolski in most lending scenerios your name would appear on the trust deed or mortgage as the beneficiary. The broker placing the loan makes the points and may charge a % for collecting payments and forwarding to you.

    This is called servicing the loan.

    A good reputable HML with years of experience ( and there are many in each and every good size city in the US) will be glad to broker funds for you.

    ASk a good closing attorney or title company for referrals to those that have a track record.

    @Lenny Longo

    I use construction monitoring services when I do new construction loans. however I do not usually use them on light to medium rehab deals. My bank here in Oregon that gives me vertical for my new construction uses said services once a month before we submit for our draws.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Account Closed

    The bar has moved in HML since the great GFC.. In our market in PDX were builders basically all went broke in flaming fashion.. Most are back at it but most now have to use HML. As banks are precluded from ever lending to a person or entity that they took loses with. ( or at least most won't) so in our market there are many buidlers that were multi million dollar companies that are now in the HML pool.. We could never have loaned them money pre 09 they would have laughed at 2 point and 12% much less 4 and 14.

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  • Jason Topolski
    OP
    Weehawken, NJ · Member since 2014 · 8 posts · 3 votes
    12y

    @Account Closed

    Thanks for your reply.

    My background: Currently working full time in the technology industry, making decent money but at the ever-increasing cost of time and quality of life. My short and long term goal is to progressively reduce the time I spend at work and supplement my income from investments. I researched a few strategies and found that private lending appears to be the closest match for my goals and requirements.

    I am leaning towards private lending since the rate of return appears decent, my involvement in the rehab project is low from a time perspective, the risk can be fairly easily categorized and hopefully mitigated if working with established rehabber, and well, because I have some money to invest.

    As for the rate of return, my plan was to go along the lines of what you mentioned earlier and what others recommended - I am willing to start with lower rate to link with a seasoned rehabber - which should mitigate risk of incorrect property/rehab cost evaluation and fraud. These, from my research appear to be the 2 biggest risks for private lenders. In the process, I'm hoping to learn how a rehabber evaluates such projects so I can be smarter about future deals.

    To minimize risk further, I would definitely prefer a project in driving distance, but I'm willing to consider away projects if the person working with me has the right credentials. 6-12 month lending.

    If you think I'm making incorrect assumptions here, please feel free to jump in and warn.

    Better now than later... :)

    Thanks again. Jason.

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  • Lenny LongoPro Member
    Real Estate Broker · Ellenton, FL · Member since 2010 · 101 posts · 23 votes
    12y

    @Jay Hinrichs

    Good point Jay. I only brought up the monitoring services because I have heard lender's using it for private lending. What surprised me the most is affordability of the builder control services, (which I have not verified personally). I think it was something like $1,000 for all those services mentioned above, for an average rehab and cost could be passed onto borrower.

    However, like @Account Closed said having that extra layer of protection, which may protect you (and actually a newbie rehabber using an irresponsible GC), may dissuade them from borrowing money from you as it is a bunch of red tape that requires time to cut through.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Lenny Longo

    course of construction inspections fee's are very reasonable. WE don't pay anywhere near 1k per house though..

    Although for new construction its much eaiser for the inspector he is there at post and beam and top out and rough elec. So they know those items are done and done to code.. then you have framing sheer wall siding roof etc. that's the next big inspection. then your clear to insulate sheet rock finish plumbing elec etc etc.4 inspections usually do it.. and we pay 75.00 per.

    Now on rehab its a little tougher as each one is so unique. And you really have to watch most rehab contractors as they are not ( not sure how you say this) but they are not in the same league as the subs generally that have one trade do their job and go to the next one.

    JLH

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  • Paul Timmins
    Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
    12y

    @Jason Topolski

    Speak to the president at the local REIA ask them who is the best rehabber.

    Check the contractors table at Home Depot and Lowes ask who is always busy.

    Good luck.

    Paul

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y

    Could work either way. When I started doing this it was direct loans and the broker was acting just as a broker. Over time that evolved into the pool model where a bunch of us have money in a pool and the broker makes loans out of the pool.

    In either case, the broker is acting as a broker and is collecting fees for putting together the deals and servicing the loans. The pool model is much easier. No hands on for servicing the loans or dealing directly with the borrower. Returns are consistent, where direct loans are not. With direct loans you will end up with leftover cash you can't invest before you don't have enough for any deal. And you end up with dead time between loans. With the pool those irregularities are smoothed out.

    1Reply
  • Jason Topolski
    OP
    Weehawken, NJ · Member since 2014 · 8 posts · 3 votes
    12y

    @Jay Hinrichs , @Lenny Longo , @Account Closed , @Paul Timmins :

    Thank your very much for your sound advice. I will research nearby HMLs as my next step.

    Regards,

    Jason.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Jason Topolski

    good luck and let us know how you make out.

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