Concerns with Private Lenders

[Nick Messer]

Hey BP community. I could really use some advice here. I have reached out to a few people on LinkedIn that stated they were private lenders. Like any sound businessman, I am looking to find a quality money source that I can build a relationship with. The loan terms for each of these lenders are phenomenal (but hey, it's not my place to tell someone how much to charge). Here's my concern: it seems like each one has a last name first and first name last, the loan criteria for each one looks very similar, and for the three that I have talked to so far all sound alike (if not the same person) and do not sound like they are local. Now don't get me wrong, I couldn't care less where the money is coming from (to a degree), but I do know that there are a lot of scams running around. Another red flag is that each one wanted me to fill out a loan app a quickly as possible to "get the process started". They all said we lend on anything and some even said they will loan up to 100% LTV. There's not a lender I know that would expose their capital to that extent. I have not sent any information to anyone yet as I am not trying to just jump into a loan. I can do that at a bank if I am so eager to leverage. But I am looking for a lender to work side by side with, and not just a bank with its cookie cutter products.

Does anyone have any advice for vetting lenders? I have requested to video chat with each one without one agreeing to do so. So that tells me a lot right there. 

[Cortney Jones]

@Nick Messer 

A lot of people who "advertise" that they are private lenders work more like hard money lenders. You'll find a lot of them on linked in and the fees and interest that they charge are often similar or close to similar.  Some will loan up to 100% of the as-is value and rehab costs, but many will want you to have some skin in the game too. 

TRUE private lenders are usually people that you have a prior relationship with that you develop over time.  It's the old, they have to know you, like you and trust you, concept.  Many times people will say that they don't know anyone with money. I hear this every day, but when you start talking to people in the right way and thinking about the opportunity that you're offering people in the right way, you'll be surprised.   Once they see you having success, hearing about the deals you have going and how they can get involved, they may be intrigued.  

As someone who is regularly approached to lend on deals, I think it's interesting that you're worried about being scammed, because as a lender, I have the same thoughts every day when I'm approached by investors wanting to use my money on a deal.  It's a catch 22, isn't it?  I will often have an investor send me an email, without even knowing me, and telling me what they will pay and how long they will need money, etc. and I just think to myself, "Really?  You do know it's my money and I will be dictating these terms, right?"  

I guess the lesson for you in that respect is to just see both sides of it.  If someone is wiring money for $100k or more they have the full risk on their side.  

The best way to find private lenders is through relationships.  Talk to people and let them know what you do and mention that sometimes you let a few close people into your deals as a money partner.  Even with the people you're finding on LI, build relationships first.  Don't just jump straight to the #'s aspect.  Share yourself and your experience (even if you're a newbie - what other experience do you have that should make me trust you're worth turning over money too?)  

You can protect yourself from getting scammed by not sending any money up front.  Do a google search on the individual, look at their LI feed to see if there are any negative or positive comments from others who have worked with them.  Of course, at some point, they may want a credit check which will cost you a small amount, but at that time, you should have talked a few times and feel comfortable doing that.  I would have 2-3 lined  up, just in case something falls through.  Maybe a Hard Money Lender as a back up, just in case. 

Hope that all helps.