Where to Find Brokers to Lend Out My Capital?

[Jeff Lawlor]

I'd like to enter the private/hard money market as an investor with money to lend. I don't want to find/underwrite/service the loans. I'll let a broker do that and earn a cut for their efforts. My problem is a lack of deal flow.

I reached out to private lenders in my community. Lots of deals "in the works" but nothing at the moment.

Unless find a way to get more deals in front of me, two things will happen:

* My money will sit idle while waiting for a deal, reducing my effective yield

* I may have to settle for a lower return among my few choices

How do I go about opening the deal flow floodgates?

[Jeff S.]

Thanks for the shout-out, @Jay Hinrichs.

Now that you advertised you have money to lend with no criteria, @Jeff Lawlor, you’ll hear from everyone and their brother, nationwide, looking to extract it from you. Most will be honest and well-meaning. Some, less so. There is a huge amount of bluster and fake-it-till-you-make-it out there. Those beating their chest claiming they are drowning in applications either have low criteria or are exaggerating. Go slow, be patient, and educate yourself first. @Rob K. gave you some great advice.

We’ve been lending our own hard-earned money toward CA flips since 2010 and couldn’t be happier. Though there’s nothing wrong with using a broker, we originate our loans locally and don’t accept investors, fractionalize, or invest in funds. Whole loans only. Here’s some advice that I hope is actionable for you:

Consider attending the California Mortgage Association’s conference this September in Newport Beach. You can do this once for $100 and don't have to be a member. The CMA is comprised mostly of smaller lenders and brokers focused in California. You'll fit right in and meet many experienced investors who do exactly what you want to get into. Lots of lending lawyers, loan servicers, and other providers attend and could be good resources for you. You'll also hear about the AAPL, of which we are also members. This organization used to be small but now attracts the billion-dollar lenders and mega-funds. It’s not for you (and I wonder about us).

As you can see above, the first thing any broker will ask you for is your criteria. Unless you have some special knowledge, I suggest focusing on 1st position purchase money loans on single or 1-4 family homes. Your other criteria should address:

• Desired interest rate – What annualized rate are you realistically looking to earn?
• Max/min loan amount -- How much money will you lend on any one loan? In CA, there is no limit on the number of brokered loans you can make, but no loan can exceed 10% of your net worth, exclusive of your home.
• Loan Seniority – Unless you can afford to be wiped out on occasion (you can’t) or have enough money to pay off a 1st (you don’t), then don’t make 2nd position loans. 1st Position Only.
• Purchase criteria – How do you define a good deal? For example, on the flips we lend, this means Purchase Price plus Rehab Cost should not exceed 75% of the After Repair Value. For buy and holds, multi-families, retail, MHPs, etc., you would use something else.
• LTV or LTC – What percent of the ARV or purchase price (cost) will you lend?
• Property Location – I suggest you lend as close to home as possible. For example, we only lend in LA, Orange, and eastern Riverside Counties. You don’t have so much money that you need a large pipeline of nationwide or even statewide deal flow. You need a handful of good-quality loans from a few reliable brokers. Consider that you are in CA. What would you do with a home you foreclosed on in Wisconsin?
• Prepayment penalty – If important to you. It’s not for us.
• Personal guarantee – We always require this.
• Credit score – Your call. We ignore.
• Source of loan docs – Super important. We use Lightning Docs. Make sure your broker’s loan docs are at least traceable to a lending attorney (not off the web, title company, broker’s brother’s jailmate, etc.). Did I say Super important?
• Loan Purpose – Business Purpose loans only. Learn what this means. Even though some brokers can make and sell consumer-purpose loans, these can be a nightmare to foreclose/collect on.

Brokers will typically keep the points. You will keep the interest payments.

This is a lot to think about and it will frequently change until you settle in. Obviously, make sure your broker is licensed, has been around for a while, and is not simply an application taker. Require references and never do business with anyone with whom you are uncomfortable.

With all due respect, BP does not vet brokers. We don’t do business with anyone we haven’t personally met face-to-face. We also look at every property we lend on. That’s the advantage of doing business locally.