When Seeking a Private Money Lender, ask the following…

[Adam Schneider]

I hear so many people who are talking with money lenders immediately talk about the interest they are willing to pay. Two things to consider--first, it might be best to start the conversation by asking the lender what type of return the lender is looking for, not what you are willing to pay. The rate might be less than what you planned on offering. Second, a loan isn't just about the interest rate. It's about the terms and the risk. Be prepared to discuss both items. Are you paying interest only, are you paying the interest monthly…are there points, etc. In terms of risk, present what you have done to mitigate (not eliminate) the risk in a quick fashion for cocktail party conversations. It might sound like, "Our lenders always have first position Deed of Trusts, just like a bank has when you get a mortgage for your house. We buy at significant discounts, so there's immediate equity to mitigate the risk of a drop in the market…" Put yourself in the lender's shoes. Are you more concerned about the interest rate, or the risk of losing the money you are investing?