Insights on my plan to become an out of state real estate investor and private lender

[Carlo D.]

Hi! So a bit long winded post but I'll try to keep it short. 

I have decided (with a partner) to start a real estate investing company. The strategy we will use is buy and hold rental properties out of state. I am aware of DSCR loans (among other types of unconventional loans), But at the same time, I do have an amount of capital such that I can float the first 3 to 4 deals that my partner and i get into.

Here are my bullet points on my train of thought:

1. For a wide array of reasons, some of which are  fees associated with loans (origination, points, appraisals, etc) I would like to act as a private lender to the real estate investing company that my partner and I are setting up. 

2. As the private money lender, Id rather make the interest income myself versus giving it to someone else. 

3. As the part owner in the real estate investing company, I get all the benefits (and yes, I realize, all the hassles/headaches/risks) associated with being in this part of the business.

4. My thinking is to initially give a 2 or 3 year interest only loan to my REI company. 2 to 3 year should be enough to purchase, rehab/improve and stabilize the property.

5. After 2 to 3 years, depending on where interest rates may be then, my partner and I can then look at refi opportunities and at that point, hopefully the property has appreciated somewhat, such that we can then pull out (a. the private loan, b. the downpayment we both put in and c. plus a little bit of capital gains).... Almost like BRRRR but on an extended time frame.

With this thought process in mind, I would love to hear the group's thoughts on this.. Pitfalls, blindspots, pros or cons I may not have thought of.  Any input would be greatly appreciated. Thank you so much in advance.

[Carlo D.]

Quote from @Jaron Walling:

@Carlo D. Nothing wrong with being a private money lender. A lot of expert level investors end up going that way at some point (retirement age, bored of flipping, tired of managing rentals, etc.). 

Question; how much experience does your partner have? A lot is riding on him based on what you described. 

Question; how much experience do you have? Same could be said from his prospective. 

Just because have $$$ does not mean you're ready to start a REI business and attack deals. If you're doing long term BRRRR deals someone better know the numbers or have boots on the ground to make sure OOS projects are getting done correctly and within budget. I wouldn't expect much FED rate changes. Personally, I'd run the business knowing capital will be TRAPPED in these rentals, and rates won't drop much in the next 4 years. Some of these properties could end up being flips. Depends on your goals and equity at that time.

"fees associated with loans (origination, points, appraisals, etc" - Who cares about this stuff. You said you have enough capital for 3-4 deals. If you're making cash offers command a better price and buy properties correctly. You make $$$ when you buy. 

 Thank you very much for your insights @Jaron Walling. Much appreciated. 

To answer your questions, my partner is quite experienced on the property management side having worked at Jones lang LaSalle for over 20 years. He currently manages around 20 buildings here in NYC.  In addition to the capital he brings in for the DP, that's his value add.  

As for me, very limited knowledge outside of my own home and an apartment I recently bought here also in NYC.  And of course, hours of devouring content from bigger pockets and other sources.  But I realize that's all theoretical. Nothing beats real world experience.  But I'm willing to learn. We go into this using the buy and hold strategy so I'm perfectly fine with my capital being locked in for the long haul.  

I gotta start somewhere right.