Private Lender. Deal first or approach about financing first?

[Robert Fountain]

I'm looking at buying my second rental and this time I'm going to go with a private lender.  The good news is that I have some great connections from my previous job.  I have a great relationship with the previous owner of the company and he just happens to be a private lender.  

My question is, should I find a deal first before approaching him or should I ask him out for a cup of coffee and discuss my plan and see if he's on board?

[Don Konipol]

Either way can yield positive results.  The advantages of identifying and qualifying a lender BEFORE you need the money are as follows

1. You find out beforehand if that individual is interested in lending to you at all.  If not you have time to establish other contacts before a property is under contract

2. You find out that lender's lending criteria, and will be able to determine if a property you are considering will qualify

3. You find out the terms that particular lender is offering

4. You can find out the amount of capital that lender has available, and guage the likelihood that he will have capital available when you bring him a deal

5. If he has credit and or experience and or personal financial statement criteria you can get that out of the way beforehand and streamline to a faster and more efficient approval process once a deal is under contract.

Many investors incorrectly believe that private lenders have no parameters, no qualifying standards, or much more easier qualifying standards. While that may be true in a very small percentage of cases, what is prevelant is that private lenders have DIFFERENT qualifying standards than conventional lenders. For example, I as a private lender will lend based on the asset _ so that I lend to people whose credit is too low for conventional loans, or have too much other mortgaged real estate, etc. The trade-off to them is that they pay a MUCH higher interest rate, and the maximum LTV is 65% vs 80% on conventional loans.

Just because you find a private lender willing to lend on your property does not mean that the loan offered will be favorable.  Truth is conventional financing offers the best rate and terms.  If you and the property qualify, and if you can wait as the lenders micro examine every minute and seemingly irrelevant piece of information asking for explanations of anything and everything in your life, then conventional loans will be a lower cost factor in your investment than private loans.