Private lending.........really?

[Wayne Jewell]

Ok Patrick, Any thoughts on the feed back I received from Linkedin?

Extremely frustrated!!!!

Wayne Jewell Real Estate Investor

Hi, newbie investor looking for a true private lender (not hard money lender claiming to be a private lender). I have spent months listening to the so called big hearted RE gurus claiming that they are here to help you but in reality are just looking to sell their system or cd on where to find lenders & not at a cheap price either. The hard money lenders want at least 20% down and want an excellent credit score and not to mention the over the top rates. Maybe I'm dreaming, thinking that there are lenders that just look at a deal based on it's profitability.. Does any one have advise or resources they are willing to share??4 comments

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  K.C.

  Mortgage Broker with Dominion Lending Centres, Muskoka-Orillia-Barrie

  Find a good mortgage broker.

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  Mike

  (Lending Consultant: Small to Medium Sized Businesses | Commercial Real Estate, Hard Money, Private Equity)

  Wayne I think you are dreaming. What is your financing expectations? 100% financing? Not going to happen especially as a newbie.

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  Roger

  Owner, Bortnem Services LLC

  I think you are also confused by some of the terminology. Private lending is a very broad category that includes almost all types of lenders who are not a chartered bank or large commercial enterprise that have access to Federal Reserve or Wall Street funds. The rates are all over the board as well. The "hard" in Hard Money comes from the nature of financing a project such as yours - not any specific rate. Your project does not conform to any normal bank's underwriting guidelines and therefore is difficult or "hard" to do. The lender, if and when you find one, is going to base the decision of if, and how much, to lend based on the "hard" asset value of your prospective property. He will also evaluate your track record of success (to be determined), your skin in the game (you don't want very much), and today's value of the property you're buying - not the ARV price you hope to get after doing your first rehab. No experienced lender will want to invest 100% of your acquisition cost because if you run into a serious surprise that drastically changes your rehab costs, you might walk away. If the project no longer works for you it won't work for your lender either after the costs of foreclosing on your deal and waiting however long it takes in your state to perfect a foreclosure - all the while paying property taxes and exorbitant insurance costs on unoccupied property. Meanwhile your lender sacrifices the opportunity cost of not having the money at work in a successful project with an experienced rehabber who is happy to pay a double digit rate of return because he understands leverage and has an efficient process that gives him a much larger pile of profit by borrowing a portion of the cost instead of limiting himself to only what he could handle with his own capital. Your best chance to do what it seems you want to do is to find an equally unsophisticated friend or relative with money and try to do a joint venture and split the proceeds on some basis you can agree on. Best wishes to both of you.

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  Wayne Jewell

  Real Estate Investor

  Thank you for your comments. You certainly opened my eyes. Guess what the gurus are teaching is not real, there is no such thing as a private money lender...I do feel you are over complicating the private money vs hard money thing though. Private money is just that...money from a private individual willing to invest his/her money. Hard money is private money but with added fees to it. A broker secures private money offering the investor 4%-8% and then lends that money to a RE investor at 12-16% plus points. Looks like I will have to figure out another way to get involved in real estate investing.

[Jon Holdman]

@Wayne Jewell I've removed the links and contact info from your post.

A "private lender" is, IMHO, someone you personally know who's willing to invest in you. Anyone who advertises or responds to ads is a hard money lender. How do you find private lenders? Not by posting here or anywhere else. You find them by talking to people you know and people you meet about what you're doing. A few will be interested. A few of those will have money. A few of those will be willing to invest in you. This takes time and effort. If you need money quickly, a hard money lender is your best bet.

Rest assured HMLs aren't getting money at 4% and lending it at 16%. Getting it at 8% and lending it at close to 16% with points and fees is entirely likely. Why can they get away with this? Because they have done the hard work of having all those conversations. They've set up the infrastructure to manage the loans, put values on the properties, do the inspections and manage rehab escrows, handle defaults, provide tax forms to the investors and many other tasks. The real key is they have had those conversations with individuals and can show them a track record of why the investment is fairly safe.

Unfortunately with no track record and (reading between the lines here) little cash and bad credit you are going to have a REALLY tough time getting started. Your deals are very likely not as good as you think because you don't know what you don't know. You will make mistakes and those mistakes will reduce your profit. A lender - any lender - will want that loss to come out of your pocket, not theirs.

I'm guessing you want to do fix and flips. You really have got to have cash to be in that business. Even if you can borrow 100% of the money for a deal as @Jason Dillard states, you need cash. Once you have a few under your belt this gets easier and you have a track record to show potential investors. Getting rolling is the hard part.

Some thoughts. One would be to work, probably for free, for a rehabber in your area. Offer your labor in exchange for being able to tag along on finding and doing some rehabs. Accurately determining ARV and repair costs are very difficult steps. Errors can cost you a lot of money. A rehabber defaulted on a loan I made (caught doing unpermitted work and ran out of cash) and lost about $30K on the deal. Do you think I wanted to share in that loss? Absolutely not. So I have to be convinced the rehabber knows what they're doing and won't generate a loss like that AND that they have enough cash to cover the loss and still pay me off if they do.

Ways to get money: Borrow it. Credit card cash advances, 401k loans, HELOCs, cash out refi of other properties, personal loans, friends and family. Sell something: cars, expensive doo-dads. Cut back: Cut your bills to the bone. Cable TV, eating out, expensive hobbies, etc. Get a second job. Especially a job that's somehow related to rehabbing.

Be humble. Perhaps I'm reading a little too much in what you wrote, but I see a bit of a chip on that shoulder. If someone you're talking to sees that, you're just lost the deal. There are lots of deals out there. If I sense ANYTHING I don't like when I talk to you I'm moving on. The first loan I ever made was to a brand new rehabber. That deal went OK, then he got cocky and got in over his head. Then he got mad because I held him to the terms of his loan. Rest assured he's never getting another penny from me or anyone I know. Friends and family might get into this because they're trying to help you out. A lender, even a private one, isn't. They expect you to protect them investment and pay them off even if you have to take a loss. Expecting "a break" from someone isn't going to happen, unless they're friends or family.