How could I get started in Private Lending?

Question

Hi, everyone!

I had a few questions about Private Lending and what it would take to be a Private Lender.

1. Is it possible to be a Private Lender professionally?

By "professionally" I mean using my private capital, seeking out investors, and then loaning said capital to their projects on a regular basis.  I'm aware that people privately lend to other people and investors all the time, but I'm asking more in the context of the legality of making an effort to seek out investors and loan to them.  Would this "advertising-like" behavior be in some sort of violation of some Law somewhere?  Let's say I contact multiple investor friends, and I inform them that I have the funds to potentially fund their projects. Let's also say I make a living from the returns.  It just seems like the solicitation process and (personally) "advertising" to them that they can borrow from me would be against some Law somehow.  Could I have a business card listing myself as a "Private Lender" and pass that out to investors as I meet them?

2. When I privately loan money, what specific type of attorney would I look for to help draft the loan agreements or otherwise help me through the process?

3. As a Private Lender, should I concern myself with protections (beyond what is stated in the loan agreement)? ...such as forming a company or other entity?  If I formed a company to do this, could this even be considered "Private" lending anymore since it would technically be the Company doing the lending and not my private individual self?

4. I know that joint ventures are another way of investing private capital with other investors and living off of the returns.  Are JV's the only way available to do Private Lending professionally? ...is it the best or preferred way for some reason?

Thanks for the help!

Jay Hinrichs · Answer

well instead of checking with folks on the internet why don't you call your state agency that controls lending and ask them what are the rules.. every state is different just because some one is doing it in antoher state makes no matter if its not legal in your state..

Rufus Reed III · Answer

@Jay Hinrichs Great idea! I hadn't thought of that at all.  I think I found the right folks for Florida online.  I am calling them ASAP.  Thanks for the advice!

Kathie Riedel · Answer

No argument with that approach.

Lana Forbes · Answer

I have been a private lender since last year, using my own money and also my SDIRA.  And I have loaned to the same person.  It is totally doable.  You can PM me for more detail

Rufus Reed III · Answer

@Kathie Riedel That sounds extremely reasonable. Thank you!

Kathie Riedel · Answer

Not saying this approach is legal but it is an honest approach. I go to meetup's etc and when talking with unknown people the question invariably will be asked my interest in real estate. I simply tell them I am a private lender. If they show an interest I suggest they bring me a deal and we can look at it. I'll ask around and try to find some one who has dealt with them. If the reputation is good and the bring me a deal that is reasonable I'll lend lend them the money. People to whom I have lent money then become friends. So it is a sort of chicken and egg thing. I do not have a separate company set up but do lend directly from my personal accounts. I do have one LLC set up but only because it is using money from my IRA.

I never act as a broker by investing with other people's money. I never lend to home owners.

Hope that makes sense.

Rufus Reed III · Answer

That is my exact concern.  If I formed a company to do it, it would technically no longer be Private Lending (proper).  Is it ok (legal) to go to real estate investor meetups offering to privately lend to them?  Is that not acceptable behavior for someone looking to invest in investors?  Would it be my safest bet to just say i'm interested in joint ventures and limited partnerships?

Example:  If I meet a flipper who does multiple flips per year.  I offer to lend them my private capital for a flip.  They accept. They profit, and then pay me back a return.

I doubt it's illegal in some way to build a relationship with that flipper and repeat that process over and over again each year.  But what if I gained enough liquid capital to introduce myself to more and more flippers? ...each doing multiple 3-6 month flips per year...  Where is the line drawn on making a living from this type of investor investing?  Would it be seen as some sort of unlicensed lending because I've scaled it up to be a large operation?

I need to know where the limit is on private lending to multiple investors.

Thank you for the reply.

Kathie Riedel · Answer

Your approach sounds like a Hard Money Lender rather than a Private Lender. You should be a licensed mortgage broker. Although if you use only your own money and lend only to investors you will probably get away with it.

How could I get started in Private Lending?

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