What do you as a private lender want to see from me?

Question

Hi

Quick background; my wife @JorDanee Key and I are working on closing on our first investment property. We plan on using a conventional mortgage for our second property as well.

After this, we are strongly considering working with a private lender to do either a flip or BRRRR deal in 2017.
This seems like a really smart move, as working with a private lender can sort of make us a cash buyer and allow us to get deals faster than the traditional route.

My question is, in preparation for this, what kind of things do private lenders want to see from me, beyond the basics of the deal?

DTI? Savings? How much money I can contribute? I assume every lender wants to know how much of my personal stake will be involved.

I guess what I am trying to ask/understand is, should we prepare our finances the same way we did for a traditional (ie having 20-25% down cash on hand) or do you want me to have other things in place. What would make me someone you'd consider doing business with? I want to prepare us, and understand what makes us a good investment for the private lender we'd do business with.

Sorry if this is a total n00b question and isn't 100% clear.

Charlie Fitzgerald · Answer

We want an asset that has sufficient value as-is to cover our loan at 75% ltv. We want you you to have a clear and reasonable exit strategy for paying us back within the term of the loan we extend to you. Yes, we want you to have 25% of your own money in the transaction as well.

The pretty charts and spreadsheets do nothing for us.

Hope this helps.

The pretty charts and spreadsheets do nothing for us.

Hope this helps.

Charlie Fitzgerald · Answer

No, there are lots of ways, we just like ours and it's kept us and our borrowers out of trouble for almost 40 years.

Charlie Fitzgerald · Answer

@Luka Milicevic No,  they report information that may or not be accurate.  We will determine the value on anything we lend money on, and we'll run the numbers for the transaction on behalf the borrower.  If the transaction is going to be successful on its merits for the borrower and they can satisfy our general guidelines, then we'll do the loan.  Currently, we lend in excess of $ 40,000,000 a month in 10 States.  That's somewhere between 65 and 110 loans on an average month.  None of those have pretty charts and spreadsheets.  The 60-75 million in loans we consider ech month on top of the ones we fund and decline to fund...those are the ones that sometimes do have the pretty charts and spreadsheets.

Charlie Fitzgerald · Answer

@Michael Key  Exactly correct.  The best thing to do is to have a short list of Lenders that you want to talk to when you find a deal that you are interested in, and then go over it with them and seek their input.  For us, our only interest is in making money with our money.  We do that when we lend into projects that are going to be good deals for our borrowers and they successfully pay us back within the terms.  Then we do it again...and again.  So, we are going to look at the deal structure from the standpoint of how successful it's going to be for the borrower.  That's a unique perspective not commonly found in this space.

David Dachtera · Answer

Although @Charlie Fitzgerald sounds more like a hard money lender, I can relate very much because I'm less visual and more conceptual: show me the numbers, not the graphs. Once I understand the numbers, THEN show me the graphs so I can double check that the image in my head matches Excel's visual representation.

@Michael Key, you mention that you're making good W2 money now. So, you'll want to get up to speed on self-directing your own retirement accounts now so you can explain it to prospective private money partners later on.

That, by the way, is my first thought at the mention of private money: people looking for better-than-market returns on their retirement funds. I was at a property tour last weekend from a member of my investing group who has a private money partner lending to him out of the partner's retirement funds. The investor gives the lender the equivalent of 40% annualized return because the lender charges 10 points and 0% for 6 months and he returned the money in 3 months (1/4 year). The lender has asked when he can lend the man his money again.

...and yes, Michael, I can relate to the "forget the 'warm' market" idea. 'Nuff said, I'm sure.

Michael Key · Answer

We have no expectation of assistance from friends or family. We've been moving forward in our goals and lifestyle, living them all behind, if you catch my drift.

Rick Pozos · Answer

I would start talking to friends and family about what you are doing NOW so that everyone in your circle will be familiar and ready to lend to you in 6 months or a year. When you find the property that you want, Cousin Bob will be ready because he already knows you, knows that you are doing well with real estate because you dont stop talking about your deals and bigger pockets. lol.

Michael Key · Answer

Sounds a lot like I need a short list, to talk to.

This probably won't be till 2nd or 3rd quarter 2017. Maybe not even then. Just very curious about other routes. Our credit is near perfect, we have reserves and we are both in tech with high-income jobs.

I was just curious about things like assets as right now, we are very liquid. I'm a planner and like to think things out in advance.

Thanks for the information everyone.

Charles Worth · Answer

@Michael Key

I think its important to define what you think is private money first. The majority of people responding are pros and as such they look at things differently as you can already see by the conversation between @Charlie Fitzgerald  and @Luka Milicevic .

If you are using private people its often a personal decision which is why many people start with freinds and family or other people they have convinced to back them. Keep in mind the majority of these people back you and your vision  just like if you were looking for angel capital for a business.

If you are using people like @Charlie Fitzgerald  or @Darren Eady  or more experienced private lenders with larger books and more time in the game they will probably look at the numbers first and foremost both on the property and on yourself as well as key indicators such as how much you have stake because they want you to have skin in the game. I think presentation matters a little bit but end of the day they know your business almost as well as you do in many cases and as such its about the numbers. I also think no matter how much anyone says we only care about the property the fact is high income, good credit or high assets dramatically reduce risk on their side if your deal is much lower than your income/assets and/or it can be easily refied with good income/assets and credit.

Ian Walsh · Answer

It will all depend on the lender.  I want to see a good deal first off.  From there I would get a rough idea of credit and experience.  Neither of them break the deal, but they play into how much I will lend.  If your lender needs more than that, they are probably not true hard money.

What do you as a private lender want to see from me?

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