Getting started in private money lending

[Tito Burgos]

I've been investing in real estate for over 20 years, mostly buy and hold condos and a few flips. I've been saving money to buy a multifamily property but it's been two years, a few close calls but I have not been able to find a property with a decent return. I have about 300k in cash sitting around that I was planning to use for my down payment and I was thinking of using those funds to provide private money to flippers. I don't have any hard money lending experience and I never used a hard money lender. However, I have a banking finance background and I don't think the underwriting for HML is complicated. I don't think 300k is enough to fund multiple project in the area I live so I was thinking of perhaps starting to get into this business by providing funding to flippers for the down payment normally required by HMLs. This is very risky as HMLs do not like 2nd liens to be put on the property.

Wanted feedback from the you guys on what's the best way to secure my investment and if any of you have done this what advice can you provide?

Thanks.

[Jay Hinrichs]

what you talking abut has been coined these days as " gap funding" and many of the fix and flip guru's preach it. 

you can set it up many ways..  however the main point is if for some reason your borrower has a hiccup do you have the funds to step in and cure their first loan.  finish the project etc.

I use a step in agreement when I do these.. I also put the first lender on notice and get a written confirmation if my borrower is in the process of a water landing I can step in and take over the project.  Attorney can help you with this.

This should only be done with top flight operators. 

Also second position gap funding is generally done in a profit share plus rate.. don't get fooled into only taking mortgage rate interest .. as the risk position is far higher.