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Updated over 6 years ago on . Most recent reply
Private Money Lender
I answered an add to a party looking for a small loan saying they would pay back at 100% return on investment. I told the person I would like to meet up with them because I was really looking to partner with someone in hopes that I could learn the business of real estate investing. They went on to show me pictures of homes that they were working on and to me they looked real good. After texting back and forth we are setting up a meeting for some time in the near future. My concern is how can I tell if the person is legit? I started wondering why someone that has done around 4-5 flips would be needing a small loan to begin with. Also if I do find that they are legit how do I go about making sure they would really pay me back? Do I put a lien on the property and will I need to do this through an attorney? If anyone has ever done this type of loan and has some good advice I would greatly appreciate your input. Thank you very much.
Most Popular Reply
You do not state the amount of the loan, but I will respond with my idea of small. Examine the title commitment to make sure you are in first position. Lending in second position may not be worth it on a small loan.
Make sure the property is valuable enough to secure your loan and cover the legal fees that would be needed to repossess the property. Would you want the property if you had to take it back? If not, would you be able to sell it quickly to recover your funds and the costs of taking it back? If not, don't do it.
If you are inexperienced, it is best to lend to people who you know and have a relationship with. If you know others who have a relationship with the potential borrower, they can be invaluable sources of information on whether the borrower brings their projects in on budget, on time, and whether they pay what they agree to. REIA meetings are great places to form relationships with potential borrowers and those who have worked with potential borrowers.
If you do not know the borrower, do not trust the borrower, do not trust there is equity in the deal, or would not know what to do with the equity if you received it, you should not lend on this deal.