Unlocking Hidden Wealth: Finding Untapped Real Estate Deals with Private Money?

Question

Present a couple of real-life scenarios where private money lending transformed real estate deals.

Jay Hinrichs · Answer

LOL... there is probably what 10k private money loans made daily in the US..

But I will play along.

PML if its true PML not HML calling themselves PML is very much relationship based.

So I just took on a new client in the mid west... And here is what I have closed for him in the first 120 days.

1. fix and flip he put up 10k I always require the first two deals to have 10k into them then i fund 100% of everything after that. so all in he is about 100k including the 10k profit I will make I just saw the HUD this morning and he will get his 10k back and make 32k Net profit..

2. Self storage did a deal for him were I gap funded it buyer needed to close in 3 days there is 400k in equity I put up 75k to close the deal and we get 100k back when it sold no matter what its sold for plus cash flow.. I will split that with him 50 /50.. So I will make 50k on my 75k he will make 50k putting up ZERO. Keep in mind though deal came to me on Wednesday Thursday and had to close on a Monday one of the reason I could do it that quick of course title was all done so I just reviewed title policy( dont need a lawyer to do my deals with my experience) etc.. And I Always go meet my borrowers before I start with them and He had showed it to me when I was there.. I was not interested at 1.2 mil but became motivated buyer when I could buy it for 800 and get 100k of upside I said sure why not..

3. 3 houses 125k closing i put up all the money he had two of them sold for 100k and that closed 5 days after we bought it so basis on the last house is about 25k .. and its on the market for 89k. I will make about 10 to 12k on this one he will make about 60k without putting up a dime.

4. fix and flip he put up 10k but we had to remove the tenant so its under rehab now.. same spread as the first one he will get his 10k back and make about 30k I will make 10 to 12k for loaning in 100k for 6 months..

5. cosmetic flip cant recall the numbers but this one i funded 100% and its about done I will make my 10k and he thinks he will make 15 to 17k on a 30 day rehab prime area of his little berg.

I also pay all the insurance he has to pay UTLS though and he has to put up EM which you know the mid west its a joke 200.00 bucks or 500.00 bucks..

So bottom line he meets me a PML on BP I like him I do a background make sure he is a good citizen he checks out.. I fly back to take a tour of his market meet his wife as well on my dime.. And in the first 4 to 6 months he will net over 100k on a 20k investment And I make my normal funding fee's which are higher than HML fees but I dont do appraisals and i have zero junk fees.. So he just pays me my fee and all those other fee's every other lender charges are not added on which many borrowers dont realize how much that is until they get to the settlement table.

U would be surprised though how many people just dont think this is real.. But it is.. Although I will tell you I really have to like and trust who I do this with.. its not lending by appraisal and fico score.

Jeff S. · Answer

Well, we don’t own a G-5 like @Jay Hinrichs 🤣, and our process is much more local, but not much different in terms of borrower and property qualification.

We only lend in Los Angeles and North Orange County.  We meet all our borrowers at local real estate clubs where we initially get to know one another.  I can quantify, but our expectation is that they are active house flippers who do this full-time and professionally, with at least a handful of deals under their belt over the past few years.

For us, the initial discussion is on their background.  They always want to know our lending criteria, which we discuss briefly and then email in detail after the club meeting.  If it appears there’s a match, we invite them, husband & wife, out to lunch or dinner to get to know one another.  Sorry, we’re not going to The French Laundry. Since they might not have a deal in work at the time, we often do this a few times to keep in touch.

Though it happens, we’re not looking to become friends, but face-to-face is the only way to determine if somebody has the integrity of someone you want to lend your hard-earned money to.  This is our “background investigation” and it’s worked perfectly for us so far.  Credit score?  We wouldn’t know what to do with that if it fell from the sky and hit us on our heads.  We do ask for a list of properties currently owned as well as properties flipped. The rest is super easy.

I won’t minimize the importance of vetting the property.  It’s crucial the borrower has a good deal and makes money. Over the past few years, competition for good deals has been the toughest since we started lending, and we've turned down more deals than ever before.

If the initial numbers meet our criteria, we always visit the property.  Whether it’s our first or 15th
deal, we want to confirm the comps and also the rehab estimate with a walk-through.  We do our own valuations and don’t use an appraiser.  Though we don’t use it in our criteria, it works out that our typical loan is at roughly 55% to 65% of the ARV.  Thus, we don’t have to hit the ARV to the last dime.  Rough ballpark, whatever that means, is good enough.  The numbers don’t become accurate until the property is sold, anyway. Some lenders fixate on this, we don’t.  Bottom line is the borrower must have a good deal.

I’ve published our process in more detail here a few times over the years.  Our most recent is here:  How to Become a Private Lender.  It’s still about 90% accurate.

Jim Peret · Answer

How much trust is built on a gut feeling? How do you typically gain trust?

Unlocking Hidden Wealth: Finding Untapped Real Estate Deals with Private Money?

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