Searching for Private Money Lenders

[Kevin A Holden]

I've been looking into the option of using hard money loans to pay for rehab projects that I can fix, refinance for market value after construction is complete, and rent out in the north Texas area, but I feel like using a hard money lender requires a lot of up front costs and fees that tend to accumulate.  So I'd like to start searching for private money lenders.  I don't have anyone currently in my "circle" that would be able to finance these kind of deals so I'm curious to see how everyone else finds lenders to invest in their business.  Do you go to meets listed on bigger pockets or other sources?  Or is it just from word of mouth once all your friends and family have heard you talk about your aspirations or successes in real estate? I'd love to hear how anyone gets their foot in the door with private money lenders and would appreciate any tips if you can send them my way.

[Jay Hinrichs]

Originally posted by @Steven Foster Wilson:

Originally posted by @Jay Hinrichs:

Originally posted by @Ryan Blake:

@Jason Wray I agree the fees tend to be higher than going straight into conventional or portfolio loans. The problem is most banks won't consider deals from new borrowers without substantial assets to back it up. Also, they will typically require a minimum of 10% down, most will want 20% or 25% and will not cover the rehab. HMLs will lend at 100% of costs (all of the purchase and rehab) so you are getting into the deal with only the fees down and then refi into a conventional or portfolio loan with the added equity from the rehab. This is the BRRRR method that is promoted everywhere on this site.

I don't know of any HMLs that still charge pre-payment penalties. The "balloon" payment is just the end of the term of the loan. You do a refinance before it gets to that point so I don't really understand that being a negative in the BRRRR process that @Kevin A Holden was talking about.

But to answer your question Kevin, the best way to meet a private lender is in meetups. But know that people with a large sum of money typically will lend to proven investors or friends/family. The easiest person to borrow from is someone close to you that trusts your game plan and knows your character and follow through. It is rare to just walk up to someone at an REI event and ask to borrow money at terms lower than HMLs.

not to mention most private lenders did not get their cash making cheap interest rate loans.. so many times they are just as expensive as HML and sometimes more.. HML rates (before covid) were a race to the bottom vis a vi points and interest rate.. Now that changed in many markets with Covid.. like most will tell you private investors are those you know VERY WELL and like and trust you and your experience..

Also be very cautious of the fake private lenders out there that contact you directly via BP facebook linkdin whatever and they want small amount of money up front.. or are just way to fast to say you are approved just need to send 500.00 to get the ball rolling. 99% of those are fakes and your money is then lost.. or they will continue to try to bleed you.. some will have web sites that look real.. Offer to send U a picture of their ID.. send you copy of a registered business or LLC ( which means NOTHING) other than those little words of warning .. a great HML can be your best asset.

I second Jays warning. The first day I started RESEARCHING private & HML o got about 3 emails from individuals who could get me 95% LTV within 7 days at 5% interest on an interest only loan.

Perfect right?

However they all wanted to either 1. Make sure I was serious so I needed to put some money up front or they needed money for processing...upfront.

If it seems to good to be true, it is.

Yup the too good to be true private lender is just a real estate loan version of the Nigerian prince scam or variation of it.. its all those folks do and for anyone with any interest at in the subject of pump and dump lender due diligence advance fee schemes.

American Greed did a great episode on Remington Financial  and the Lady who brought them down Ingrid Robinson ( who has a website ).. 

when I wrote a blog on this for BP  I wanted to get Ms. Robinson to co write it with me but she declined.  She lets the show and her website warn investors who happen upon those two things.

I recall in 2009 when capital was near impossible I too called Remington they were out of Scottsdale . I had a semi complicated Note JV program for rental props ( which has not been copied LOL ) and was looking for seed capital.. they were just too quick to promise me 5 million just needed to send 10k for due diligence.. ( which is not out of the realm of possibility with real lenders) So the dollars were small enough 10k.. and I knew bigger loans you normally have to pay something up front for due diligence.. But too quick to approve us.. just smelled bad.. On the Remington side they went along for 20 some years doing this.. but only taking 5 to 10k.. and had good lawyers.. so too small of money to really litigate .. it was proven in court in the criminal trial that over the course of those 2 decades they arranged less than 12 loans. compared to thousands of 5 and 10k due diligence submissions by would be borrowers.

One of their main targets was the newer developer.. you know you have this great idea or project but no experience and no real lender is going to loan to you.. I get those types e mailing at least once a week looking for money so I know the demand is out there.