What do Private Lenders look for?

Private Money, Hard Money, Bridge Loan, Gap Financing, Private Loan...  It can go by many different names, each carrying it's own connotation, but essentially all of these terms describes a funding requirements that falls outside of normal bank requirements/standards. This can be because of property type, condition of the property,  land value vs. improved value, status of entitlements, credit worthiness of borrower, lack of ability for borrower to show income history, etc. The point being if you have a project that doesn't conform to typical mortgage standards rather then pass on the deal, learn who to properly structure to meet the needs of a private lender.

So what do private lenders want?

1) They want a project partner that knows what they are doing. Even if this is your first deal have a professional well thought out summary. Put together a budget summary. Show were your out sale forecast came from. Provide data as to time on market for subject area. Tell the lender were the deal came from. Most private deal have a back story.

2) Don't let your project become their project. The last thing a private lender wants is to have to take over and finish your project. While not having a set down payment requirement, most private lenders want to see that others have enough invested in the deal to keep them in the deal. You can do this through cash down payment, having the seller hold a subordinated note, or offer additional property to be dual secured and additional collateral. Show the lender that you can do this and  this deal will not be a problem for them to manage.

3) Address questions before the come up. If you have a credit issue address it and show how you've moved past it. If no documented income either offer a guarantor or offer additional down payment/collateral.

4) Make sure in all cases that the lender does what they say they are going to do when they say they are going to do it- and live by the same high standard.

Utilizing private funds can help you do another 3-5 projects a year, it does not need to be your every day source of long term capital. It is set up to be a bridge. Acquire it, renovate it, build it, sell it or rent it. Convert to a permanent loan or sell and do it again..

Find  a private lender that is local to you that understands your market. Set up a meeting so you can understand the guidelines and decide if your personalities work well together. Most private lenders are looking for repeatable business that they can cultivate with a investor/developer. Do it right and you can lock down a source of funds in perpetuity..