Real Estate Agent · Orlando, FL · Member since 2014 · 46 posts · 11 votes
Hi BP!
Over time, I’ve found investors on social media discuss how they began their investing journey using private money. However, I’m seeking to learn from other experienced investors… are private money lenders willing to work with newbies on their first deal – especially when the newbie prefers not to or isn’t able to source from their immediate circle of family and acquaintances?
Do they prefer a ‘personal guarantee’ along with insurance and the promissory note? Are private lenders okay with being in 2nd
position, and do they want to be able to place a lien on the property until the loan is satisfied?
Also, as I'm analyzing both multifamily and commercial leads and learning about DSCR loans, can private money fund the remaining 20% – 25% needed to close and/or the reserves needed to qualify for a DSCR?
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Hard money is more willing to work with newbies than private money, the lending relies heavily on the deal. If the deal is great they are more likely to lend to you regardless of your experience. Your rehab numbers will be checked.
In short, no. Private money lenders rarely if ever give money to someone with no experience, even dscr lenders need a track record first. BUT, if you are able to find a PML they will most likely adjust the rates to fit the risk for a first timer, thus making the deal not very viable for a first time investor.
This is an issue that every first time investor faces when they don't have capital. I had to source it from my family, and once I had one deal it was easier to get others, but getting that first one is key.
Lender · San Diego · Member since 2021 · 80 posts · 56 votes
3y
Hey Mona!
Lenders typically looks at Experience, FICO, and Liquidity to determine the risk of a borrower. While experience is the most important, having strong liquidity and FICO can help reduce the lenders risk. Also, many borrowers have indirect experience like JV'ing a friends deal, being a real estate agent, or having a construction background — all of these help add color to the borrowers profile. Interest rates will be around 1-2% higher but assuming your loan is charged IAD (interest as dispersed) and you exit the project in a few months it will be a minimal difference.
As far as the source of your funds....true hmls wont care if you have a 'gap investor' or whether the funds are coming from a family member vs a friend, what most lenders WILL care about is that that person does not attach a 2nd position lien to title.
Personal guarantees are required on nearly all loans even when closing in an LLC, as well as proof of proper insurance coverage prior to close.
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Hard money is more willing to work with newbies than private money, the lending relies heavily on the deal. If the deal is great they are more likely to lend to you regardless of your experience. Your rehab numbers will be checked.
Real Estate Agent · Orlando, FL · Member since 2014 · 46 posts · 11 votes
3y
@Brett Deas Thank you for the feedback. It's helpful to hear from other investors about the financing process and potential hurdles towards completing the first deal. Definitely will keep all of what you stated in mind as I continue to analyze multi/commercial leads.
Real Estate Agent · Orlando, FL · Member since 2014 · 46 posts · 11 votes
3y
Thank you @Sarah Hatton. I’d like to keep your contact for future reference. I’m taking the feedback received here to re-strategize getting my first multi/commercial deal.
Hard money is more willing to work with newbies than private money, the lending relies heavily on the deal. If the deal is great they are more likely to lend to you regardless of your experience. Your rehab numbers will be checked.
Thanks @Eliott Elias! I previously placed hard money leaders on the back burner due to hearing other investors focusing in on private lending for deals. It’s something I’ll need to revisit in order to make a first multifamily deal happen. Would you happen to have any recommendations from hard money contacts you have worked with?
@Brett Deas Thank you for the feedback. It's helpful to hear from other investors about the financing process and potential hurdles towards completing the first deal. Definitely will keep all of what you stated in mind as I continue to analyze multi/commercial leads.
Also it is important to have reserves for any repairs. As the rehab funds are sent out as a draw. Meaning you complete $10k worth of work, it then is inspected and then you receive $10k back from the lender. I have helped many first time Hard Money borrowers receive loans as we are a direct lender. Reach out if you have any questions.