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Updated about 10 years ago on . Most recent reply

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Daniel Ryu
  • Investor
  • Suwanee, GA
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Do friends follow through with investment money for new investors? What have your experiences been?

Daniel Ryu
  • Investor
  • Suwanee, GA
Posted

I was messaging with @Bill Gulley

 the other day about financing and the topic of friends coming through with promised financing came up. He thought it might be an interesting thread to post, so here goes:

What experiences do people have when it comes to friends 'following through' with promised investments for your first deals?

Since I'm a newer investor who has had friends express an interest in investing together in future deals, I'd like to hear what others have experienced.

Thanks!

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Jeff S.#4 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
  • Los Angeles, CA
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Jeff S.#4 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
  • Los Angeles, CA
Replied

It's not just friends and family who can be unreliable, @Daniel Ryu.  Whether they are using their personal savings or running a large mortgage pool, the funds most private money/hard money lenders have at any time is generally close to a fixed amount. These are non-institutional lenders and don't sell their loans to Fannie Mae's deep pockets or have access to the Federal Funds Window.

To maximize return, the name of the game is to be continually loaned out. That is, any money in the bank does not earn a return so your goal is to make sure you have none. I'm not talking tongue in cheek.

It's unfortunate, but many in the industry have earned a reputation of promising money they won't necessarily have when it comes time for you to close. This is true of some very large private lenders down to the cold feet you're Aunt Mable might have when it actually comes time to wire her money for your deal. (For this reason and more, mixing business with friends and family is never a good idea.)

A measurable amount of the calls we get are for last minute loans because another private lender flaked out. In many cases, these are some large well-known lenders in the area. Sometimes we can help and sometimes we can't.

The only way around this is to continually shop for money by forming as many lending relationships as you can. This is not about loyalty – everyone appreciates the phone call from you asking for money. It's about protecting yourself and your deals. Every experienced flipper we do business with maintains a stable of lenders, large and small, that they can tap for money. Of course they have their go-to favorites, but they also have to protect themselves. You should do the same.

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