Private Money Discussion

[Nghi Le]

It has been my experience that BiggerPockets and REI Clubs are not good places to find private money. The individuals who go to these places are savvier investors who are looking for a good return on their capital, i.e. hard money rates. However, this might just be my area because Seattle is very saturated with capital and investors, so I wanted to see how it's like in other areas across the nation. What has your experience been like?

I'm currently getting private money at 6-8%, but these are people I actually have a relationship with - family, friends, co-workers, etc.  I didn't "find" them; they've always been there.  I just talk about my real estate passion all the time and it catches people's attention.

I'm able to get private money at these rates because of my experience and because I'm getting hard money at 7-9%; it doesn't make sense to pay more for private money than hard money (although there are exceptions).  Back when I was a newer investor and was paying 12% for hard money, my private money was 10-12%.  My very first private lender I actually paid somewhere between 20-30%, but it was because they were the only ones who believed in me enough to lend me money when I had absolutely no experience, and it was well worth it.  I still reward that person very well today (but definitely not at the same rates).

Also, just because private money costs the same as or even more than hard money doesn't mean you shouldn't take it.  In real estate, sometimes terms matter more than price.  Some good reasons to take a more expensive private money are:

• 100% financing. It's tough to find a HML that will do this.
• Less qualifications.  No credit checks, no application, etc.  I know a guy that texts his PML, "Hey found a good deal.  Need $200k." and the PML responds back with "Okay" and they close 2 days later.
• No draw schedule.  Most HMLs typically require you to front the rehab, and then when you make enough progress, you have to request a draw, which might require things like an inspection, lien waivers, paid invoices, etc.
• No hidden fees (and sometimes no points).  Always be careful about what HMLs are charging beyond points.  I've seen "junk fees" ranging between $0 and $5,000.
• Can finance things that HMLs can't.  An example would be land or a mobile home.  Most HMLs won't touch these.

Let me know what you think of my random thoughts and please share your experience.

[Nghi Le]

@Lane Kawaoka 15-20% sounds like a sophisticated private investor.  Find someone who's too busy to shop around or not too savvy about investing, like doctors.  People in IT usually aren't good options for cheap private money (IMO).

I started getting private money on 2nd my deal from strangers, but it was less so about track record.  There are multiple ways to build credibility and depends a lot on how you build the relationship.  Being professional on all social media platforms (LinkedIn, Facebook, etc) goes a long way.

@Marc Faulkner I'm not sure if private money terms are affected much by locality; that's the question I posed.  I know that hard money is definitely affected.  In general, hard money will cost more at the lower price points (because of the fixed fees).

@Shiloh Lundahl I'm surprised; I've seen your posts around BP a lot and you seem like an established investor (and BP member).  My strategy was to base private money on my hard money, so I spent a lot of time lowering my hard money costs.  I'll shoot you a PM and we can strategize based on your situation.