All Forum Posts by: Alex Breshears

On the debt side of the house - the capital provider would loan you/your business the money with terms that are mutually agreed upon. It could be monthly interest payments, a larger lump sum at the end, maybe you pay all the interest up front - there’s options. The loan could be unsecured or secured against real estate. There needs to be defined length of time the loan is out (so maturity date), rate, payment amount, frequency, etc spelled out in the promissory note. If you want to remain partners/friends - I highly recommend having this drawn up by a professional to make sure it is legal and clear. This option can offer the capital partner either a steady monthly cash flow (if that’s what they want) or a lump sum at a future date if you sell/refinance later when you pay back the principal amount. This is a very fixed return model. For unsecured personal loan - that’s a lot of risk for the capital provider so I’d say minimum 15% annualized interest rate - MINIMUM.

For the second track - there's equity. This is where they are a partner with you on the property in some capacity. Maybe it's the two of you as individuals, your business entities or you form one together. In this model you have outlined everyone's roles and responsibilities- who's bring whst to the table in terms of money, time and effort. In this framework the capital partner is exposed to the upside AND the downside. If the rehab goes over budget, the market turns, the project can't be completed for some reason - they are exposed to that downside risk as well. They also might be signing on for the debt of the HML - and if there is a personal guarantee - pledging personal assets. There is no fixed return on this model because they are part owner of the asset. So as far as the percentage to compensate them - that really depends on who is doing what and for how long. 20% of a deal that will only get $10k of profit at the end isn't very attractive - but that's the gamble you take with equity. The pro forma numbers are just that - numbers. When the dust settles and the deal is done - that's the real numbers and those could look paltry. Now saying that will be the case but a lot of investors think equity is all upside - when in reality it isn't. You are on the hook for taxes, insurance, liability claims, and the mortgage as an owner - none of that as the lender.

I think the real question to answer first is asking what you capital provider really wants. Do they want consistent stable income? Debt might be a better fit. Do they want to learn the flipping business by your side and see the possibility of doing multiple deals with you in the future and you two are compatible business partners? Then equity. Whatever you choose for this first deal doesn’t have to remain that way for subsequent ones either. So ask what they are looking for - and then see if there is a way to meet that ask both in terms of structure and financial amounts.

1 Vote

Milwaukee, Wisconsin

Quote from @Shirley Gordon:

I am looking for a Hard Money Lender for a short-term personal loan. The interest can be high.

Hi Shirley!

Just to help you get the correct information or leads for possible lenders - I wanted to offer some insight.

Personal loans are generally not going to be in the realm of a hard money lender. The reason they are termed “hard money” is that their loan is tied to a hard asset - usually real estate. That means they will want to lend on a piece of property/house/building etc and have a lien secured against it as a first mortgage.

Personal loans are most of the time unsecured, credit based loans to an individual - which would not be the business purpose lending most real estate lending institutions are going to be doing exclusively.

If you are looking for a loan for property, it can help people if you let them know the state the property is located in, what type of property, etc. That’s likely going to get you the best responses!

good luck on your real estate investing journey.

0 Votes

Atlanta, Georgia

Quote from @Phil Petite:

Quote from @Alex Breshears:

Quote from @Phil Petite:

Hello BP!

I have a meeting tomorrow with a close friend of mine, who has deep pockets, and I'd like to run the idea by him of investing together. I'd love to do some rental deals with him, but I'm unsure of how to structure deals that we do. I'm not sure if I should let my friend put all of cash in for deals, and then I would take a management fee (either yearly or monthly), or if it is better to take an upfront fee.

Any advice would be greatly, greatly appreciated!! Thank you!!

Hi Phil!

This could be a great opportunity - but before you get ahead of yourself - think about what you want from this arrangement and what that individual might want. This can shape the conversation so it is mutually beneficial for both of you.

I know the obvious answer is you want money - but there are tons of ways of structuring that money - that again need to fit what both of you are looking for.

For example - if you truly want lender to provide money to purchase and maybe rehab the property - and this person is someone who wants steady cash flow - then lending makes sense. Does that mean you have a blank check to go out and buy everything? No. Chances are they will want to know how their money is protected in the deal - what type of asset are you looking to buy - how much leverage are you thinking of taking on each property / what are you doing with those properties? Be prepared to have a structure that you think would work for your business model and see if any of it resonates with that person.

If you want to offer them some education - BiggerPockets has a private lending how to manual - of which I’m one of the authors - and it can be a great resource to give to people like this to say here is how I’m going to protect your money in my deals. It would be helpful if you were familiar with the process too 🤣.

Another option might be a JV partnership - which can be as simple or complex as you want it or need it to be. The roles, responsibilities, contribution of time and money to the business etc could be outlined in an Operating Agreement if you form a new entity together. You could also maintain your two business entities and have both on title - but there are drawbacks there as well. Having an equity partner is VERY different than using capital as debt - and both of you need to realize there is upside AND downside as an equity partner.

I hope that helps! Feel free to ask follow up questions.

Wonderful post, Alex, thank you so much for the feedback! What you're saying makes sense to me, and I will definitely think about how to make the deal as mutually beneficial as possible. Where can I find the Private Lending Manual? Please let me know, I'd love to read it ASAP, as my meeting with my friend is tonight! :)

https://store.biggerpockets.com/products/lend-to-live

here’s the book. You can get the audio version there as well - or the ebook if you want to thumb through something now.

1 Vote

Memphis, Tennessee

Quote from @Phil Petite:

Hello BP!

Any advice would be greatly, greatly appreciated!! Thank you!!

1 Vote

Memphis, Tennessee

Quote from @Carlos Ptriawan:

Quote from @Alex Breshears:

Quote from @Becca F.:

Someone on BP messaged me about doing transactional lending and a double close. I spoke with him on the phone and he asked me if I could help fund his deal for $91,000 and it would be wired to a title company. He would pay me 7% and I would get the money back in 24 hours, 48 hours at the most. He does his sales pitch about loaning him $100,000 and doing multiple deals in a month and I could supposedly make $30,000 a month by doing 10 deals a month.

I told him I wanted to research this. I've never met this guy - he's out of state in Florida, says he's a licensed realtor. He sent me the purchase agreements for these properties. The title company emails me paperwork thinking I'm going to loan him over $200,000 for 2 properties... absolutely not. Then lots of high pressure, promises me 10% then 12% if I can fund his deal or find someone else. I have no idea if this title company is legit. They have a website. I could throw up a site and say I'm XYZ business.

I guess some people make money doing transactional lending but this whole scenario sounded shady. If it was someone in the Bay Area I could meet in person, may be worth considering but someone over 2000 miles away, hard pass. Making $30,000 a month.... come on.... I have a bridge to sell you in Alaska.

I can’t tell you how happy I am that you stood your ground! I’ve seen this before and so many people just bend to their will. I have done transactional funding - but I still underwrite the deal as if they would keep it on the off chance they can’t get the end buyer to exercise and actually close. You did the right thing!
No matter what - you have them sign your documents that you had your attorney create for you. Do not use someone else’s docs - ever. You don’t know if they are legal in that state or even protect you as the lender. It’s critical you know your docs and are familiar with your terms in those documents. Don’t fall to the pressure tactics. Stick to your guns and your gut!

this industry is very scary

I think any industry is going to face issues with people trying to game the system or just outright commit fraud or take advantage of others. I don’t think this is exclusively a private lending problem. It’s seen in every industry in every trade unfortunately.

1 Vote

Quote from @Jeff S.:

Quote from @Alex Breshears:

Unless this refers to a commercial property (5 or more units), this is incorrect, @Alex Brashears. A lender cannot call a default if their residential (1-4 unit) borrower takes out a 2nd, 3rd, 4th, or any other junior/subordinate loan. That’s not to say that many residential loan docs don’t contain this language. And, the lender doesn’t have to make the loan if they know this is the borrower’s intent. Once made, however, these loan terms are unenforceable unless this is a commercial property. It doesn’t matter that it might be a business-purpose loan.

A Promissory Note, DOT, Personal Guarantee, and JV agreement are hardly overkill, @Jarrod Ochsenbein. But what’s the JV doing in there? Are you a lender or a partner? We get our complete loan doc package from a lending attorney, and you should too. If the state you are lending in requires a license, you should find someone with the appropriate credentials to originate the loan for you professionally. Don’t make things up on your own and, for heaven’s sake, don’t make your loan contestable. With due respect, since loan docs are state-specific, be careful asking here which documents you should use. Your lending attorney will know.

Last, even though you seem to have enough to make a relatively safe 1st position loan, if you insist on making a 2nd (???), the 1st position lender is now your best friend. Make sure you introduce yourself to them. (It amazes me how few 2nd position lenders actually do this with us even though we welcome the calls.) Ask about their background. What’s their loan mod/forbearance policy? Do they foreclose quickly? Do they have a construction arm and also flip houses? Will they call you first if there is an issue with their loan? Take heed of the answers. They could control the future of your loan.

Hi Jeff! Thanks for the input. I appreciate it. I am going off what my attorney has said and how our specific loan docs are written for first liens. That may very well be the case in a practical sense as a judge may just toss the case if the judge sees the mortgage is being paid on a timely fashion. I’ve also known a few lenders who build in a fee for waiving a stipulation in the loan agreement - so if they discover a second lien they could issue a small fee (one time or monthly) for allowing the borrower to be outside of their loan agreement. I personally don’t use this strategy.

I do agree with reaching out to the 1st lien holder if doing a second just to get an idea of what those loan terms are since my loan would be junior to theirs.

0 Votes

Quote from @Tony Pellettieri:

Quote from @Alex Breshears:

Quote from @Tony Pellettieri:

We just started to Fix & Flip using our own capital a few months back and currently have two projects that are both about 3-4 weeks out from completion. I decided to commit full time to learning this business as I knew starting out, even after studying real estate for the past 4 years, it was going to be a tremendous learning curve. I'm fortunate to have found a great GC to work beside me that will be our Project Manager to pull permits, and Subs/Handyman to complete all of the required work.

We have some additional capital on hand that exceeded what we needed to complete our first two projects and recently came across a deal that we didn't want to pass up that our crew is able to take on. We just put it under contract yesterday. That'll be flip #3.

Our plan is to sell the 2 houses which we expect to make nice returns on, invest all of our profits back into the purchase of 3-5 more properties, and scale as quickly as we can. We've made some mistakes along the way to say the least, which was expected, but they have led to many lessons learned.

My question is... What forms of borrowing/lending would be best to access the capital we need when we find a deal we're interested in purchasing? Starting out, once a funding source is lined up, I'd ideally like to put under contract a deal a week for the first couple of months while ensuring the team we have in place is able to handle the work we take on while making adjustments as needed.

Our target properties are able to be purchased for 40k-60k, need 15k-70k in repairs, and have an ARV of 125k-225k+ depending on the extent of the rehab involved. We plan for our holding time moving forward to typically be 10-12 weeks up to 4-6 months depending on the SOW.

Welcome to real estate investing - it sounds like all the time you spent learning is paying off. As someone who lends out my own capital - I can tell you I’ve seen my borrowers organically and manageably grow their real estate portfolio. The focus on scaling is one thing - but the purpose is another. Acquiring more doors isn’t always the solution! So with that being said - I just wanted you to have a moment to think about what exactly does “scale” look like to you from a financial perspective - a time perspective - and what you physically want to be doing with your time.

Once you know that part - it is easier to put the puzzle pieces into place. For example - if you decide over the next 12 months you want to buy 10 more properties to rent out as long term rentals - and you will be living off some level of cash flow for these properties - then making sure you have the best borrowing capacity possible will be crucial. Think high credit scores and being able to show sufficient liquidity for your growing portfolio as your reserve requirements.

Bank loans or conforming loans may work for properties that are habitable and not in need of significant renovation. Also - if you have the ability to have 30 days to close on that particular property - that may offer the lowest interest rate, longest amortization period, and you won’t have to go through the expense and time of refinancing. DSCR loans will also work in this way - but more of the focus may be on the property itself - but your personal credit may be pulled in the process.

If you are facing the situation the properties are not habitable and you will need to close quickly - hard money/private money (those are two different things) - will likely be your best option. Those loan products can vary wildly - but I can speak about what I generally do as a private lender. I will lend up to 100% of the purchase price that goes up to 70% of the after repair value. We will also lend on renovation and repairs up to that 70% after repair value. In that case - your cash requirement would be down payment (if any) and closing costs - and then refinance into permanent debt within 12 months once the property is renovated and rented.

Operating in the price ranges you are - what my investors do is buy 2-3 at a time, renovate them as you have mentioned and then refinance them all together into a portfolio loan to get around the minimum loan amount problem that can be sometimes an issue in these types of markets.

You can use leverage as a tool, but it can also be a weapon. There needs to be a balance of liquidity for yourself and your business, cashflow, and leverage for the property/portfolio. That’s why I say scale with intention - it’s easy to get excited and caught up - and before you know it you are working 80 hours a week in a capacity you never imagined.

pick the right tool for the right job!

Hey Alex, Thank you for your detailed response. After much research in the past 24 hours, we're really started putting the pieces together. Our plan is to use HMLs for acquisitions and DSCR Loans to Refi on properties we decide to hold. Our reason behind wanting to scale is to acquire more hold properties in a shorter time In the high growth/appreciation area we're investing in. We realize with growth comes the need of finding/bringing on more people to assist with all the tasks/extra work involved.

Our goal this year is to find/complete a combination of 50+ BRRRRs/Flips, cashing out $20k+ more on the properties that we hold, and $30k+ more on the ones we decide to sell. I believe we will make many mistakes and learn much along the way.

We look forward to becoming contributing members of BP as we learn and help others as others have been helping us.

I love the clarity of that goal! That’s going to be key - so I’d say you are 80% of the way there. You just now have to plug in the details at various stages - and those details will likely change as you grow!

0 Votes

Charlotte, North Carolina

Quote from @Melissa Svenson:

Hello Big Pocket Nation! We reside in beautiful Coeur d’Alene, Idaho. Joined Bigger Pockets to network with likeminded real estate investors while we continue to grow our portfolio for our family. Interested in LTR’s, Multi-family, hard money lending, creative financing and potential partnerships 🏠 💵 📈

Hi Melissa and welcome to the community! BP has a wealth of information - from the bookstore to BPCon. You mentioned a wide variety of interests - so my suggestion is to focus on one or two that really resonate with you and dive in. It’s so easy to get shiny object syndrome in real estate - there are just so many ways to have opportunities.

If you are interested in being the lender for investors BP has a book Lend to Live - that talks about this process and how to do it. I’m one of the authors.

My suggestion would be to network with people who are doing those things and get their perspective on what they like, don’t like, what they would do differently. Don’t spend time talking to them about the mechanics of what they do - that’s available anywhere. Ask them stuff that isn’t readily available on YouTube or a forum. That will really help shape how you move forward and what opportunities you feel you want to pursue.

0 Votes

Coeur d'Alene, Idaho

Quote from @Hen Ley:

I'm looking at becoming involved with private lending. I know when someone receives a traditional loan from a financial institution they typically are required to purchase title insurance to protect the lender. Do private lenders ever also purchase title insurance, either as a requirement from the borrower or just cover the expense themselves?

Great question and I’m glad you are thinking that way! BiggerPockets has a private lending book that I am one of the authors of - and title insurance is a definite must and talked about at length in thr underwriting sections of the book.

Yes, lenders title insurance is a requirement and an expense to the borrower. We actually require 125% of the loan amount in coverage. Please keep in mind that title insurance is different from most other types of insurance in that it protects largely for actions that happen before closing. It will not stop other liens from being filed or even coming in ahead of yours in priority. There may also be some additional riders you want to have added to the policy to further protect you as the lender. Pay special attention to the exclusions listed on the preliminary commitment and make sure you are ok with those and that you understand them.

If you are interested in the book to learn more it's called Lend to Live and you can get it in the BiggerPockets bookstore in whatever format fits your learning/reading style.

0 Votes

Quote from @Joy Scott:

I have tried to enter the real estate space for a number of years with no success. Everytime I get close to a good wholesale deal something kinda big happens in my life, like a new baby, and I lose the time and motivation to pursue it. I'm getting close to 10k back on my tax return this year and thought that might be some solid capital. What would you do if you had a spare 10k (or only 10k) to invest in something today?

Hi Joy! As another woman in real estate I fully understand your post - life happens and we have to deal! lol. With that being said - I honestly think the best way to work with that money is going to be education. Learn about the different types of investing - the goals you are trying to get to - the problem you are trying to solve. We need to be as strategic about our time as we do about our money!

Education can come in the form of networking at local events or virtual meetups. Listen to a variety of podcasts or talks about various topics in real estate and see what sparks an interest or resonates with your purpose and goals. I would only consider a mentorship or mastermind that are paid once you have a pretty solid idea that is the direction you want to go in real estate. Those connections and first hand experience are great stepping stones to future success. You can also use that to take classes for some sort of licensure or certification to learn more about real estate while having an income if that interests you at all - something like a real estate appraiser, residential real estate agent, commercial real estate broker, property manager, short term rental manager - just to name a few. That way you are building experience and getting paid for it!

Feel free to reach out. I also lead a women’s accountability group for real estate investing - and I know it may feel scary and overwhelming now - like you can’t get ahead - but I promise you that you can. Pick your goal and go for it!

1 Vote

All Forum Posts by: Alex Breshears

Alex Breshears has started 7 posts and replied 310 times.

Post: Private Capital Interest Allocation

Post: Hard Money Lender

Post: Meeting with Private Lender - Advice Needed!

Post: Meeting with Private Lender - Advice Needed!

Post: This Blows My Mind For Those Acting A A Lender

Post: Private lending in 2nd position

Post: Obtaining additional Capital for our Fix/Flips to Scale Faster - Suggestions?

Post: Growing investment portfolio with focus on generational wealth

Post: Title insurance for private lending?

Post: What would you do with 10k?

Alex Breshears has started 7 posts and replied 310 times.

Rounded Star Post: Private Capital Interest Allocation

Rounded Star Post: Hard Money Lender

Rounded Star Post: Meeting with Private Lender - Advice Needed!

Rounded Star Post: Meeting with Private Lender - Advice Needed!

Rounded Star Post: This Blows My Mind For Those Acting A A Lender

Rounded Star Post: Private lending in 2nd position

Rounded Star Post: Obtaining additional Capital for our Fix/Flips to Scale Faster - Suggestions?

Rounded Star Post: Growing investment portfolio with focus on generational wealth

Rounded Star Post: Title insurance for private lending?

Rounded Star Post: What would you do with 10k?

Post: Private Capital Interest Allocation

Post: Hard Money Lender

Post: Meeting with Private Lender - Advice Needed!

Post: Meeting with Private Lender - Advice Needed!

Post: This Blows My Mind For Those Acting A A Lender

Post: Private lending in 2nd position

Post: Obtaining additional Capital for our Fix/Flips to Scale Faster - Suggestions?

Post: Growing investment portfolio with focus on generational wealth

Post: Title insurance for private lending?

Post: What would you do with 10k?