How much does your private lender require you to put down?

Question

We all know that most Hard Money lenders will require 10-30% down payment on a deal just so you have some "skin in the game". But do find that private lenders are different?

I have used a private lender that has not required any down payment so I have gotten 100% loans for deals. I know not all private lenders are that generous. I'm wondering if anyone else has had the same good luck with private lenders and if not, how much "skin in the game" have your private lenders asked you to put in on a deal?

Thanks!

John Thedford · Answer

If you are getting good rates HOLD ON to this guy, send him Christmas presents, and let him know how much you appreciate him. I just had my profile changed from "private lender" to HML due to my buddy @Bill Gulley raising the issue. FYI, I never fund more than 80%. Some borrowers get less. It depends on the risk. I cut way back on LTV on vacant land. Are you using your PL funds to flip or buy and hold? I also borrow private money and I pay between 6-7%, straight amortization, for up to five years.

Andrew Syrios · Answer

Private lenders are a very diverse group. Many will want some skin in the game, but others will be OK financing it all. That is especially true if you have a good track record and experience with them, but probably the best thing is leverage, i.e. lots of private lenders. That way if one isn't willing to finance it all, you can go to the next. And if they know that you can do that, they often drop the "skin in the game" requirement.

Bill Gulley · Answer

Borrowing money to buy notes can put you into a broker's position instead of investing privately with your own money!

When I did not have my mortgage company I obtained a few private loans at 100% and gave additional collateral, usually a second on another property. With my mortgage company hat on there was not a problem obtaining 100%, I was then seen in a different light.

Sound great to get 100% but be careful as a borrower enticing an individual to lend money under terms that are not prudent, regardless of how good of a deal you think it is. Be especially careful dealing from retirement funds or non-business folks or the older-elderly types. If granny loses money you can bet you're getting some phone calls, regardless of the terms you devised you can end up in court very quickly.

I suggest if you get 100%, then throw in some additional collateral showing your best intentions, skin in the game and dealing prudently with non-professional lenders!  :)

Jason Martins · Answer

I'm currently in a buy & hold with a 2 year balloon with this PL.

I completely agree that a PL that will do a 100% loan is someone that you know very well and trusts you, which is the case in my situation. I always thought it was strange that he never asked for a down payment but I certainly never complained. Trust and a certain comfort level with someone plays a big part in the down payment. Someone you don't know as well would probably ask for something down at first.

It's interesting to hear other investors experiences when it comes to their relationships with PL's.

Rick Pozos · Answer

A true private lender is someone that you know personally or is a close friend of a friend or family member. It is not someone you find on Craigslist, BP or somewhere on the internet. Sometimes the terms get used interchangeably, but they are very different.

I have a friend who is also a real estate investor. She has a sdira and she wanted to lend out the money. She trusts me and knows that I have done a number of deals in the past. She lent 100% to purchase a non-performing note that I planned on getting performing. 8%, interest only, with a 1 year balloon.  It all depends on the two of you who are doing business. We talked about what could happen good and bad. We put it on paper. We have done a few deals in the past and will do more.

I guess my point is that the terms were discussed, negotiated and agreed on, they were not dictated as a take it or leave it. That is private lending.

She has never asked for a tax return, credit score or references. We are friends. And actually, now that I think about it, SHE was the one to approach me about borrowing if I needed it.

How much does your private lender require you to put down?

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