All Forum Posts by: Alex Breshears

Hi Sam! 

As a private lender (in my definition I lend out my own capital), I can say I haven't had a single referral from an agent in my area. They usually don't even know private lending exists, much less know to look for people doing it.  The ones who do are likely to keep the lender to themselves because they are also investing in the area. So I wouldn't wait for an agent to cough up a lender, especially if you want truly private capital to buy properties.

Now hard money lenders are using the term private lender now, which is both good and bad. In my world as a private lender, the experience is VERY different from a hard money lender. For example, I don't pull credit reports, I have the flexibility to do creative financing options, defer interest only payments, etc etc.  Hard money lenders have capital all the time, and this liquidity comes with strings attached. They have to lend in their certain box because the capital they are using is not their own. The source of the capital dictates what that loan and underwriting guidelines look like.

With that being said, I would suggest finding a few lenders you want to work with, either private or hard money lenders, and really understand the programs and their guidelines. Realize the rates are likely to change unless you lock something in very soon. It's just the nature of the economic cycle we are in right now. If you know the financing options you have available to you, then you will be able to analyze deals with real world numbers for financing.

Hi David!

The struggle is real for investors right now trying to tap into equity they have in properties. One thing to realize that even in the best bull market, getting access to 100% of the equity in your properties won't be likely to happen, and also may not be advisable as a borrower. I know borrowers love the idea of pulling out as much equity as they can, but it can be a liability to be overleveraged in a property. As an example, if you are 90% leveraged on a property, if the market softens, rates rise more, it may not be possible to get out from under that property by either having a property with negative cash flow or you are bringing thousands to the table to sell it.  Right now, in the current lending and economic environment, being a little more conservative with your eyes on the long term big picture may actually get you further.

As you have likely seen already HELOC's on investment properties are very sparse, and likely will max out around 70% to 75% of combined loan to value. Another thing to look at is the lock out period for the loan. While it might be a HELOC now, they traditionally then turn into an amortizing mortgage at some point. Many HELOC lenders have shortened that timeframe, in some cases only allowing draws and repayment for 2 years, and then whatever is out at that 2 year mark then becomes a regular amortizing mortgage. So pulling out equity through a HELOC may only be possible for a short time, so think about the timing aspect of it as well.

Good luck!

Hi William! As a private lender I wanted to chime in on this to help add some value.

First, finding a private lender that would be willing to lend up to 100% of everything needed may not be viable in the current lending environment. If you sound an amazing deal and all in you were at like 50% LTV, then maybe, but otherwise lenders are going to want you to have some skin in the game. Also, a lender will want to be on the debt side of the equation - meaning regular monthly payments while the loan is outstanding. If you are curious how to repay them entirely, that would happen once the property is sold, and then the lien is paid off and a satisfaction of mortgage (in a mortgage state) would then be filed to show the lien was officially satisfied. The other option is doing a refinance, which the same process would still apply only it would be your lender and not the borrower's lender that paid off the private loan.

I would suggest learning a bit more about private loans before approaching someone about lending. There are a lot of considerations that need to be made to do this legally and safely. I happen to be one of the authors of BiggerPockets private lending book, and I live in VA! So happy to help.

The link to the book is: https://store.biggerpockets.co...

While the book is geared to show someone HOW to do a private loan, it acts as a sneak peek behind the curtain for active investors for what lenders want to see. You can then create your own private lending army because you will be the knowledge leader in your network on how others can invest with you but still protected.

Hi John! If the loan was done under your personal name, you would need to refinance the loan to get your name off the loan. As long as it was originally issued under your name, it doesn't matter how the property is deeded, it matters what's on the lien instrument that is filed with the public records in the municipality the property is located in. If the DTI is the issue as a personal borrower, you could refinance into an LLC you own, and then the loan is technically on the LLC. Depending on the lender, they may ask about other debt obligations you are responsible for that do not show up on your credit report, such as a loan you have signed a personal guarantee. So this process alone may not be entirely the thing to fix the DTI issue.

Hi Klavish! As both a woman and a private lender I feel this so much! I'm so happy you reached out to ask the right questions. First, I am one of the authors of BiggerPockets private lending book. That book will give you and your friend a really solid foundation in the considerations and action steps you need to take to actually do the loan. It will talk about the documents you should be asking for, what to look for one them, and what other paperwork you may need in the course of the loan. You can also potentially work with an experienced lender to broker the capital or invest in a debt fund to get distributions without having to shop around for a borrower and do the process of loan origination.  please feel free to reach out with questions! I love helping other women get involved in real estate, and I think private lending really fits the lifestyle many women!

Hi Daniel!  As a private lender, I just wanted to make you aware of some ambiguous terms around lending, with private lender being one of them. In my eyes, a private lender is an individual (or their business entity) that lends out capital on non-owner occupied homes. There is a push in the industry for hard money lenders to now coin themselves private lenders. While frankly I don't care about the terminology, what I do care about is the expectations and the experience a borrower is going to have. When borrowers are talking to my definition of a private lender - you are talking to the decision maker. We do the underwriting, we look at what we find as acceptable risk, and we can say yes or no. Our capital doesn't come with strings attached.  Hard money lenders are great, not trying to vilify them, but they are a different tool entirely that what I do.  The reason I bring this up is that if you are looking for just downpayment and rehab funds, but want to get a 1st lien from a hard money lender, I would vote about 90% of the time they will not allow a junior lien (which is what I would fund as a private lender since I'm one of the few that does seconds).  So in reality, what it sounds like you need is a hard money lender that can do a pretty high loan to cost loan and then fund up to 100% pf the rehab. If you find this, make sure you ask about their draw model. Most lenders (especially right now) are going to want to see you have your own capital in the deal, and also you will be funding a portion of your rehab with your own money, and then put in to be refunded for the repairs already paid for, with the lender. This is termed a construction holdback or construction draw.  Make sure you understand what that process is so you can plan effectively to renovate in the timeline they are working with. 

Hi Leona!  I am a private lender and co-author to BiggerPockets private lending book.  I know quite a few individuals who lend their capital on projects across the country, including Texas. I don't want to blast their information on the forums, but send me a message and I can connect you to a lender in Texas that may be able to fund this loan for you.

These JV arrangements can vary wildly, so there isn't a typical structure. If both partners are happy with these terms, then move ahead.

I would have your operating agreement drawn up by an attorney because there are A LOT of other considerations for a business other than returns. Terms for who can sign on debt for this new LLC, who someone can be bought out, how are shares inherited if a partner passes away, can the shares be sold, what happens of the LLC becomes insolvent and can't pay it's debts? The list goes on and on. Working with an attorney will allow you some insight into the many aspects of the LLC most people don't think about. Go into the partnership thinking about a logical path out, so if the time comes you both know how and what the process is to get out of it.

Also - realize that the ownership equity doesn't have to match the payout or depreciation shares. Someone can be a 45% owner and get 100% of the depreciation or even 25% of the distributions.  

Hi Rene! To get the most benefit out of your post, do you mind sharing some details on what you are looking for? Helpful information would be state the property is located, whether it is your primary residence or investment property, and combined loan to value you are seeking.

The issue may be your debt to income ratio rather than your current income. If there are any debts showing up on your credit report, working to pay off those debts would lower your debt to income ratio which may allow you to take out the HELOC.

As far as buying the second property, you could bring on a partner to provide the capital and credit to purchase the property. You can also look for subject to and seller financing deals, but likely will need at least a bit of capital to make those deals close.

Realize that as a lender, the fastest way a loan defaults is when a borrower runs low on money (either income from the property, cash reserves are depleted, or their W2 income cannot cover the monthly debt).  If there is truly an income limitation, it may be better to hold off until you are in a better place financially. No matter what property you buy there will be needed repairs, holding costs for the loan, and even maintenance just to keep the property in good shape. The last thing you want is to start off your real estate investing journey with a property that is going to be a drag on your household finances.