Private Money Lending Dream or Reality?

[John H. Hill Jr.]

I'm contemplating providing private money loan to a someone that purchases homes (usually with hard money) at auctions. They claim they can have my loan back plus 10% in 30 days. My question to you all is how possible is this and/or what means do you believe this person has to guarantee such a deal?

The most logical answer I have is that once they acquire the property, they sell the property almost immediately for more than 10% of the purchase price (plus fees) knowing that their sell price is also a good deal.

[Jeff S.]

Are they offering you 10% or 10% APR? Big difference, @John H. Hill Jr.

Though of course you should get a personal guarantee if the loan is to an entity, no one can guarantee you will be repaid in 30 days. That’s just silly. It’s also completely unrealistic.

Ask them to show you the buy and sell closing statements for several recent deals they completed in 30 days. My bet is, they can’t. Six months is more realistic if they have to do repairs and a 10% return (20% per year) is still pretty good.

Bluster aside, it’s more important you originate your loan legally, John. Nevada is easily the most restrictive state in the union for private loans. They do not recognize a difference between a consumer or business purpose loan.

All loans must be originated by a broker and you should use the broker’s paperwork, not that of your borrower. Make sure, as well, that you are lending in first position only and through a neutral party such as escrow or title. Never hand a check or wire money to a borrower.

By my read, you’ve never done this before and someone skilled has their hooks into you. Get a good broker on your side who will guide and protect you. Don’t do this on your own.

Best of luck to you, John.

@John H. Hill Jr.