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

Question

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

• K.C. Mortgage Broker with Dominion Lending Centres, Muskoka-Orillia-Barrie Find a good mortgage broker.
• 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.
• 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.
• 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.

K.C.

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

Find a good mortgage broker.

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.

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.

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 · Answer

@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.

Jon Holdman · Answer

Go to the resources link above and pick up J Scott's "book on flipping houses". It's a great starting point for learning the flipping business.

James Wise · Answer

@Wayne Jewell getting started is the absolute hardest part. Some good advice from John about alternative ways to get the money. I'd reccommend getting some deals under your belt using your own money.

401k, HELOC, Cash advance etc.

A guy trying to get money to do his 1st flip is a world apart from a guy getting money to do his 15th flip.

Mike Jakobczak · Answer

raising funds can be hard in the beginning as you don't have a track record. Having said that, it's not impossible.

How I started raising my funds was start from your inner circle of people you know and that trust you. Friends and family. As you complete your first few deals then go to their inner circles and continue moving forward.

Some may say you should never borrow from friends or family but keys be realistic, you got to do what you got to do.

Wayne Jewell · Answer

Thanks Jason, I believe it can be done. Hearing it from you makes me more determined..

Jason Dillard · Answer

Don't listen to the ignorant. We borrow 100 percent of price and rehab from private lenders. It's not easy at first to find a new lender and convince them to invest the way you need. It's work and you may have to pitch many people. However, when you do a couple successful deals, then the lenders are easier to find. It's the track record and your confidence that makes new lenders feel safer. It's a personal thing for the lenders. Most of our best lenders had never loaned money before. Social media is probably the wrong venue to find one. Face to face and one on one meetings without any time crunch for your need of the money, is a better method.

Go find 100 people that say no. I dare you!

Paul Timmins · Answer

@Wayne Jewell

Private money is everywhere. You need to educate others on what is going on in real estate today. Find out where they have their money today if its in a bank they are getting 2% interest, cd 1%, retirement 3-8% or could be loosing.

Good luck

Paul

Lucy Martins · Answer

What about if we have a little money, a good credit, an empty lot, a sweat flip guy (husband) and don't know how to start?

Jon Holdman · Answer

I think wholesaling is just as hard as rehabbing. You have to have most of the same skills and you have to have cash to do marketing. Its commissioned sales, so no closed deals means no paycheck. But it is a way to learn the business.

This business has a bad reputation that its easy to start with no money, no credit, invest just a little time and make big paychecks. Sounds easy and that's what makes it easy for gurus to sell expensive courses. The reality is that it takes time, money and effort but that it is a good long term way to build wealth. Real estate jobs like rehabbing and wholesaling are really jobs. You have to turn the crank to get a paycheck. But if you learn the business and invest the time and money they can be a profitable jobs.

Rick H. · Answer

Learn lead generation, problem solving, deal making and financing. In that order.

I've never had to chase money. I focus on deals that make sense and never, never, never work on marginal deals. Better to work in the garden.

Focus on deal flow. If the deals right, the money will always appear.

You won't make no dough if you ain't got no flow.

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

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

Extremely frustrated!!!!

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