Rules for Seeking Private Loans?

Question

I have been reading up on the whole 'Private Money' side of RE Investing and seem to get conflicting information. I am thinking in terms of future deals, not my current one, and want to have the homework done ahead of time.

My first question is if there are any good books or other resources out there any of you would recommend that give a thorough overview compared to the more brief coverage here?

My understanding so far is that I can NOT do 'general advertising' of "Do you want to invest for great returns' etc......

I am thinking along the lines of either talking to people I know, or sending letters to some of them explaining things. What I am wondering is what can I show these people in print to explain what I am doing and why they might want to be involved and what's in it for them.

A few I might talk to about "Partnering" but most I would be talking about them "Lending" to either myself, or the LLC that my SDIRA is in.

Thanks for any advice,

Dan Dietz

Joshua Dorkin · Answer

Folks - Please return to the original intent of this thread.  Any off topic posts from here forward will be removed without notice.  Thank you.

Jack Bobeck · Answer

@Joshua Dorkin - Thanks man! I feel as if I know you and Brandon first hand having listened to the BP Podcasts while I work at properties. Great stuff man! Great stuff. I hope someday I can be interviewed. But I am happy to help my fellow investors one post at a time, when I can.

Jack

Joshua Dorkin · Answer

@Jack Bobeck - Solicitations like that aren't allowed here and as such, the post has been removed.  If you click the REPORT button next to any post, you can let the mods know about spam or solicitations that don't belong.  Thanks!

Jack Bobeck · Answer

@Hans Restuccia  I have a real problem with sending people to a 3rd party website. Why not contact Joshua Dorkin or Brandon Turner, the founders of Bigger Pockets and ask them if they can post your information for all to see? Why should any of us have to go to a 3rd party website for information that is readily available on BP, when all you need to do is search for it, or listen to a podcast or read one of the available books? The whole point of BP is to create an open area for investors to learn and share information.

Will Barnard · Answer

Great question. The answer ranges depending on the circumstances, but keep in mind two important factors:

1. As little as possible to get the money.

2. The cost of the money is not nearly as important as the access to it.

This may leave your question unanswered, but with more analysis and more experience, it will answer your question.

Larry Roberts · Answer

I really like this topic thanks for posting. What would be a interest rate you would offer or a range?

Will Barnard · Answer

Steve posted some great rules. I would add a caveat that you could break the rule of making mortgage payments IF that was the only way to get the loan and in doing so, I would want to negotiate a lower rate or lower loan costs.

I would also add that you can legally have two or more (you should keep this number to 5 or less) lenders on one note, it is called a fractionalized note, but keep in mind there are rules to follow in doing so and you should ONLY do that  when a licensed broker is brought in to facilitate the transaction.most important rule mentioned is to tell the truth and I would add to that, ALWAYS perform and pay back the money, even in the event of a net loss.

Will Barnard · Answer

I don't know of any books that cover this in detail, most books cover conventional financing and that of hard money lenders, both two different animals.

As far as finding the lenders, correct, you are not allowed to publically advertise. Starting off with people you know is step one, then meeting new people and then talking to them.

What you should present to them is a history of previous deals, how their money is secured, cover all the "what if's", including the worst case scenarios, develop rules for your business, i.e. never place a lender in an LTV greater than X% and then follow those rules, explaining to the lender that these rules were put in place for their protection and security of their funds.

Acquisition strategies, your team, and your exit strategy (along with alternate exit strategies) should also be covered.