All Forum Posts by: Jeff S.

Are you an underworld figure, @Sylvia Castellanos? In witness protection? Perhaps a CIA operative? These seem to be some extraordinary and expensive steps you’re going through to obtain something virtually no one needs. Honestly, I had to smile over the irony.

I’m not trying to be snarky but you’re jumping through hoops to secure anonymity, only to end up frustrated by the very companies that promise it—companies that, ironically, are shrouded in their own layers of privacy. If you're already this annoyed trying to work with them, imagine how anyone else will feel trying to do business with you.

Here's the simple truth: despite the glossy promises made by the law firms pushing this stuff, real, airtight privacy just doesn't exist. Try sending one of your attorneys into court to tell a judge, "Sorry, we're not disclosing who owns the LLC." How do you think that will work out?

Also worth noting—unless all your properties are located in Wyoming, your LLCs will have to register as foreign entities in every other state where the properties actually sit. That usually means disclosing ownership anyway—and paying for the extra fees and tax reporting.

I know many investors who are perfectly comfortable buying property in their own name. Most, however, form LLCs in the states where the properties are located, run their businesses with integrity (not implying you don’t), and carry adequate insurance.

Bottom line: in this day and age, there’s virtually no privacy that can’t be pierced. And anyone telling you the opposite is probably selling you something else, too. Don’t waste your time or money on this.

You’re making a common mistake, @Josiah Guyer. You are not paying $68k in fees. The $54k down payment is not a fee; it goes toward the purchase of your house and becomes equity when you close. It’s still your money.

You appear to be borrowing $161k ($215k – $54k). The remaining $14k for closing costs, points, and fees are expenses. Your points and fees are $7k/$161k, or 4.3%. This could be high but does not seem excessive. Similarly, $7k for closing costs sounds a bit high, but not extraordinary. Of course, this could be regional.

You need to shop around a bit instead of jumping to the last lender who financed your personal residence. Ask them to explain their charges individually so you can make relevant comparisons and avoid the wrong assumptions.

I disagree with some of the advice here. Since you're looking for non-conventional lenders, @Caitlyn Frizzelle, I assume you're seeking a business-purpose loan. Correct?

An NMLS registration is only required for consumer-purpose loans. Lenders who exclusively provide business-purpose loans—such as for buy-and-hold properties or flips—do not need to be registered with the NMLS. For example, we are licensed in CA, only make business-purpose loans, and are not required to be registered on the NMLS. Nor are we. (By the way, the NMLS is a registration portal, not a license. Jeeze.)

Unless a lender explicitly states that they also offer consumer-purpose loans, not being listed on the NMLS is not a red flag. It does not automatically indicate a scam.

Similarly, the Better Business Bureau (BBB) is not a reliable source. The organization has been widely criticized for favoring businesses that pay membership fees, leading to inflated ratings.

You didn’t mention which state the property is in. If it's in a state that requires a lending license—such as California—you should be able to verify the lender’s license. However, I don’t believe Ohio requires a license for business-purpose real estate loans, so this may not be helpful in your case.

Here’s the bottom line: No one here can give you a foolproof way to identify scammers as long as you're willing to borrow anonymously. LinkedIn, Facebook, Craigslist, Connected Investors, and most other online platforms are cesspools. Even the lender list on BiggerPockets isn’t vetted.

Change your approach. As private lenders who loan our own money, we don’t lend to anonymous borrowers — and you shouldn’t borrow that way. The safest way to lend and to borrow is through face-to-face relationships.

Local real estate clubs are your best bet. Here’s a Meetup link to real estate clubs in Toledo, OH. There are quite a few. When you attend, introduce yourself to the club owner and ask which lenders regularly attend and have the best reputations. Take a few out to lunch, ask informed questions, and build real relationships.

Never rely on online strangers to find your money, Caitlyn.

Urgency is often one of the first signs of a scam, @Kala Samuel. I know it’s easy to be cavalier over $15k, but why would you conduct business with a stranger for a property you haven’t seen?  How did you meet this person?

Don’t be blinded by the percent return. You will be taking your profit to the bank in dollars, and it won't be much. Note that a 20% return over 90 days is an 80% annualized rate. You didn’t provide the state in which the property is located, but unless there is an exemption, this loan would almost certainly be deemed usurious.

How are you verifying this person’s background? Though I agree with @Rick Pozos about obtaining title insurance, the title company will not completely vet your borrower or the property. This is on you.

I’m always leery here when an inexperienced lender accepts loan documents from their borrower. Who will review them to ensure they're enforceable? Who will handle the mortgage recording?

How did you confirm the $25k construction budget and why did she blow it in the first place? What if more is needed? How did you confirm the construction schedule?

Like any other real estate loan, ensure you are listed as the mortgagee on her fire and liability insurance policy.

Get a document indicating she intends to sell this property as part of her business. Verify that she or a family member will not be moving in, and clarify the use of the funds in writing. Your money should be wired to her business account if she has one.

Last, with her approval of the invoices, you should pay the contractor. Not her.

Our first loan was in Palmdale for $78k. It was a first-position purchase money loan, which is the only type you should consider, @Steve Chaparro. The bad news is that this was in 2010, and prices have risen just a little. 😊

As of early 2025, the median price in Palmdale ranges from the mid to high $400,000s. Similarly, you could consider lending in the Inland Empire, but the median price there falls between $400,000 and $600,000 (Riverside or San Bernardino Counties). If those prices aren’t out of the question for you, Los Angeles is even worse—nearly $1 million, which I still find astonishing.

The better news is that you will likely be lending on flips rather than consumer-ready homes. A skilled house flipper should pay no more than around 60% of these prices. Therefore, the minimum loan you’d likely make would be around $250,000.

If you are not an accredited investor (which I assume since you asked), you might consider a fund that does not require accreditation. @Scott Trench wrote an excellent blog on selecting a fund, including the pros and cons you should consider: Debt Fund Investing 101.

Alternatively, many brokers arrange fractionalized loans in California. This is a middle ground between a fund and a whole loan, and there are some restrictions. In this case, you would lend with up to 10 others on a property, with your name on the deed of trust. Few states allow this, but California does.

If you’re able to make a whole loan on your own, there are a few rules we strictly follow:

• Don’t lend to anyone you haven’t previously met and gotten to know over lunch once or twice.
• Don’t lend on any property you haven’t personally walked through.
• This means never lending far from home—you could end up owning the property.
• Understand licensing and usury laws in California. This means having a discussion with a lending attorney and using a California-licensed DRE broker to originate your loans.
• Unless it’s a fractionalized loan, only make first-position purchase money loans to experienced flippers. Experienced flippers know how to find their own rehab money.
• Avoid high-risk lending—Gator lending, EMD loans, unsecured loans, etc., are for fools. Second-position loans are only for those who specialize in them.
• Avoid all the DMs you will now receive from out-of-state borrowers who know your funds are limited.

Your life will be much easier without partners or investors, @Sam Shikiar. We lend to local flippers in LA and have mistakenly partnered in the past. Splitting profits or sharing equity can become a logistical and bookkeeping nightmare.

As a partner, I don’t want to worry about how you are spending your money on expenses so that I can make a profit. Nor do I want to worry about why a property is taking longer than planned or your issues with contractors or building departments. Frankly, I don’t care. It’s much easier for both of us, and cheaper for you, to just pay me interest and for me to stay out of your hair. This lets you do what you do well and not manage investors. Yuck.

If you do the math, a typical private/hard money lender will end up with about 25 to 33% of the profit on a flip. Compare this to the 50% you might have to share with a partner and the decision is easy. Nor do you want to cross-collateralize or build any sort of house of cards. There’s no need.

Cash management is an issue every rehabber has when they get enough properties.  Find lenders that will let you defer payments until you sell the property. If necessary, offer to pay interest on the monthly interest payments you would normally make. If you run the numbers, you’ll see the extra cost to you is extremely nominal. I argue that this makes the loan safer for the lender because it keeps cash in the rehabber's pocket, where they need it, instead of in our bank. Money should be the least of your worries.

I don’t subscribe to the myth that if you find a good deal the money will come. That’s nonsensical guru-speak. Scaling is going to be more about finding good deals than finding money. If you’ve been doing this for a while and have good relationships with even just a handful of lenders, like just about every one of our borrowers does, you’ll find the money. Even seconds. As I’m sure you know, finding good deals and reliable contractors is the key.  Focus on those.

Consider a project manager when you get enough properties and don't give away the farm, Sam.

When you bought your permanent residence, @Doug Pham, did your lender, say BofA, accept loan documents that you provided, or did they require you to use theirs? Do you see a conflict of interest here?

I know you’re well-intended, and I suspect your private lender—a friend—has no background in lending any more than you do. That’s okay, but you owe an obligation to him to ensure he’s educated and understands what he’s getting into. That is, your friend is the one who should be speaking to a lending attorney (not a real estate attorney) so he understands what you will be signing and the risks and recourse behind his loan should something bad happen. Additionally, the loan documents should be drawn up under his control. Of course, you should sit in on this conversation.

He must also understand licensing and usury laws in the state where he’s lending and ensure compliance. It’s important that he understands the significance of making this a business-purpose loan to protect against the consequences if it is not (for example, if you decide to move in at the last minute—it happens a lot).

I don’t know Jon Hornik, who’s located on the East Coast, but Geraci and Doss can provide a solid loan package. We use Lightning Docs, which is owned by Geraci, and we receive nearly 20 documents for every loan. Plus, we require a lender’s title insurance policy as well as fire and liability insurance policies with specific requirements, as well as a handful of endorsements for each that are recommended by our attorney. Why is that never mentioned here? Your friend might also want to enlist a construction management company to manage draws and perform inspections to ensure your project is progressing according to plan. This would also be in your best interest. I’m not trying to overcomplicate or scare you, Doug. All of this is normal, not too costly, and the process is fairly easy.

My point is that your friend is likely lending you a life-changing amount of money and should understand what he’s getting into, how to protect himself, and his options if something goes sideways. I know you’re trying to do the right thing, but with all due respect, you’re not the one who should be providing his loan documents or educating him about a process that you also seem new to. He has too much money at risk on your behalf. Whether he likes it or not, this will involve a bit of work on his part.

The good news is, if things go well, he could become your perfect private lender over many deals.

Good luck to you both.

No one should be lending unsecured money to strangers, @Magnus Wikström. And only those who specialize in it should be lending in second position. You’ve written about your history of success, but every active investor we know—including us—eventually runs into an issue. What happens then, especially since you’re in a foreign country?

From what you wrote, I have no doubt that you are honest and sincere, but I become suspicious when someone asks for an unsecured loan. I know you didn’t say this explicitly, but to me, your request says: “I want to borrow money from you with the ability to walk away from the debt, free and clear, for any reason, and leave you no way to get your money back.” I'm sure you'd agree that even if you were based in the U.S., this would be a problem.

Foreigners can get secured loans in this country if they own some domestic real estate. This route might be easier for you.

We only lend to experienced rehabbers who have been doing this full-time and locally. Our process is to initially get to know them face-to-face, by meeting a few times over lunch or dinner and even walking a few of their properties. Since we only lend our own hard-earned money, this gives us the confidence that they are the kind of people with whom we want to do business—and vice versa.

Most people are good people, but occasionally, we meet a stinker. We don’t consider the higher fees on a deal or two as the “win.” The long-term relationship, with those we genuinely like, over dozens of deals, is where we make our money. What a shock that these are our most valuable borrowers. The property is always a close second, and the borrower must always make money.

I attended a real estate club recently where they played "Shark Tank." Here, four major lenders sat at the front of the room, and potential borrowers presented their scenarios. I thought it interesting that none of the lenders seemed to care that some of the borrowers would obviously lose money on the property they presented. I even asked this of the panel but only got evasive replies. It was one of the most interesting REI clubs I've attended and very telling.

We make it clear to all borrowers up front that we will only lend if we are confident they will make a fair profit. Since we hold our loans, their profit is the only way we get paid back. We have strict financial criteria we use to ensure this and can prove time and again that our criteria work. It’s not perfect—“stuff” always happens—but the most important part of any loan is that the borrower makes a fair profit. If they make money, we make money, and I know we’ve talked more borrowers out of deals than we’ve approved loans.

You might clarify, @Angelo Santitto. Note investing can be broadly categorized into two classes – performing and non-performing notes. To generalize broadly, most who call themselves private or hard money lenders (or any of the other euphemisms for the same thing) typically originate first-position or (rarely) second-position performing real estate loans. These lenders originate their loans and hold them to maturity, like us, or they might sell them one at a time to an investor like you (?). Larger lenders might bundle their loans and sell them en masse to a Wall Street hedge fund, bank, or insurance company.

Those who like to label themselves as “note investors,” as you did, typically buy defaulted or non-performing notes. Often, these investors buy bundles (tapes) of defaulted loans at a great discount to the principal balance and then create workout agreements with the borrowers to get the notes to perform. Occasionally, they buy a non-performing note with the intent of foreclosing to obtain the property. Except for some commercial investors, this is virtually never the intent of a residential performing loan investor.

Lately, performing notes investors are typically earning between around 10% to 15% for very little work after origination. On the other hand, non-performing note investors can make into the hundreds of percent, though usually against relatively smaller dollar investments. There is also a huge amount of strategic and legal expertise across many states in getting non-performing notes to “re-perform” and be sold, perhaps to someone like you.

Performing loans don’t require anywhere near the same amount of work or expertise but typically involve a lot more capital per loan. Availability of funds is one reason some buy NPNs. That is, you can buy many non-performing notes for a relatively small amount of money.

Well-originated performing loans rarely default. The typical P/HML has a default rate around 1% to 3%. Even then, if originated at a sensible LTV, the lender is usually made whole through foreclosure. On the other hand, it's quite common for non-performing note investors to get wiped out on a significant percentage of their loans. They make this up by earning tens to hundreds of percent on the remainder and can do quite well.

Though some funds do it, it's a rare individual I know who invests in both types of notes. We are firmly in the performing note camp and spend only a handful of hours on each loan from beginning to end. The rest, to me, can be a full-time job.

I’m not trying to define you, Angelo, just wondering your direction and why.

(Also, post where you wish but you’ll get better interactions if you post each question or comment to one forum instead of several. I’m not sure which forum you expect responses for the same comment.)