How to find Private lenders

Question

Hello everyone I have been investing for about two years and have six successful rehabs under my belt. I am a buy-and-hold investor, started with single-family recently purchased a duplex and want to go bigger.

I know this topic has been discussed before and I searched the forums, but the question is how do you find a private lender in your area and what do they really loan?￼

Really what I’m looking for is a private lender who would loan the down payment for a larger multi family. ￼￼ I can get the financing fairly easily I believe, but I don’t want to use up all of my funds for a large down payment.

The only advice Ive been given so far is “ask everyone you know”.  Other suggestions are seller financing, but how common is that? Is that something you can suggest to the seller?

Thanks for the advice, I really want to move up to bigger properties.

Rick Pozos · Answer

Hey @David I. I think you are not looking at real estate investing as a business. VERY RARELY is a business going to be booming or looking for super expansion in 2 years and 6 profitable deals. The market has been going up like crazy for the last several years, so just about anyone could have made money in the last 2 years. As mentioned, 100% is NOT advisable, especially with pandemic, election, and rates at near zero. All of these things say that the economy is turning the corner for trouble.

Someone who is going to invest with you wants to see long term stability. 2 years is not long term.

ok so now for the positive: You have 6 rentals, sell one. That will give you some cash. I know you want to keep everything, but you have to give up something to go bigger. Sometimes you have to give up cash, time, effort, or maybe a property or two.

Keep marketing to find the deals. Owner finance deals do come up. When they do, capitalize on them. When you hear that a neighbor wants out, capitalize on it. YES, keep on networking with others, not just real estate investors.

I headed up my class reunion several years ago and I have purchased 4 deals from friends or friends of friends from networking with old friends. They know what I do and they referred others to me. Keep doing what you are doing and more deals will come. Don't get so anxious to take over the world. Take over a city or two first and see what happens. Then take over a state. A country will fall to you and then WORLD DOMINATION!!!

Jay Hinrichs · Answer

Your looking for equity NOT a lender..  most senior lenders on bigger deals will 100% demand real equity and not allow a second as the down payment.. so start looking for reality which is an equity partner.

Scott Wolf · Answer

@David I., def check your local REIA's like @Ryan Howell mentioned.

I do think you may run into the issue of Private Lenders not wanting to lend as the DP.  They're left with limited recourse should something go awry with the bank.

Rick Pozos · Answer

What you are probably looking for is called Syndication. The simple of it: you find a property for $1mil. you need 300k for a down payment and 100k for rehab. You go out and find some friends that have that cash. You throw in the deal, they put the 400k and you keep 20% or 30% of the deal and they keep the rest. you-30% them-70%. After you manage the rehab, get property managers in place, and the property is worth $1.5mil in 5 years. You sell the property for 1.5 and they get 70% and you get 30% of the profit. The same split with cashflow along the way. Maybe a small fee (2%) for helping with the acquision, lawyers, deposits, etc.

After 5 years the loan balance is probably 590k down from 700k, sell for 1.5mil, minus costs of about 150k, gross profit 760k minus the 400k put in from the beginning leaves 360k net to split 30/70 or you make 100k and investors make 250k on their 400k in 5 years plus cashflow along the way.

Very basics of a syndication/equity split on a commercial deal

Dan Costantino · Answer

@David I. As a lender, myself...2nd position on a down payment doesn't make sense for me.  Im sure there is someone out there.

I'd advise you to build rapport with lenders by giving them 1st position loans.  Then ask them to consider 2nd position.

If I supplied the down payment, that means the property is 100% leveraged.  I am concerned if you're buying deep enough.

I buy below market and fix up with a budget under 80% so I can refi out without leaving cash in.

Maybe someone will give down-payment for some equity?

Ryan Howell · Answer

Try your local REIA...ours in Asheville has a private money sub-group specific for this purpose.

Christopher H. · Answer

The advice from @Jay Hinrichs is bang on

The other thing to consider is.. do you really want to be %100 leveraged on your first mf deal? Or any deal for that matter. Especially if your market is booming like many are. That's a real heavy bag to be caught holding.

Several deals under your belt gives you credibility and proof. Your primed to look for an equity partner!

Just curious.. You have done several deals on the same strategy? Did it work? Is there a reason your straying away from that strategy?

No need to fix what isn't broken. If that's the case. :)

Charles Kao · Answer

@David I.

Best way to understand how lenders think is to lend.  When you have done it its amazing how your mindset changes. I can’t tell you how many stupid mistakes I made trying for private money when now that I lend alot I see all the risks they take.  Find the private money and make sure your deal works with the financing but don’t try to make your deal work by going cheap on financing.  Lastly don’t leave a lender hanging to save 1 point unless you don’t value the relationship.  As a private money lender if someone shows me a deal and I spend my time underwriting and they go with someone else I never even look at their deals again for wasting my time.  Also never ever over guarantee what your turnaround is.  Biggest annoyance is when borrowers miss their deadline to pay the lender back.

Khaled El Dorry · Answer

@David I. I use myhousedeals.com and they have a huge list of private lenders.  Also BiggerPockets has a section for that you may be able to leverage.

David Robinson · Answer

@David I. You may benefit from researching portfolio experts that can help with the 6 properties and get cash out for the larger multi family.

How to find Private lenders

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