All Forum Posts by: Beth Johnson

@Stefan Tsvetkov - If your HELOC was with the bank/lender in 1st position already then that could attribute to the lower costs. A title policy alone is several hundred into the thousands depending on the loan amount and refinances are typically $500-1000 for closing so it's not beneficial for a PML to place capital and lose money on origination costs, right out of the gate. But remember that PMLs don't run things like a bank does - taking deposits, making loans, selling said loans for an interest spread, rinse and repeat. Their business model is entirely different than a private lender and they also can absorb risk and legal matters much more easily than an individual PML could.

@Ellie Narie - This is our wheelhouse. We can lend in 2nd lien position and cross collateralize properties to help you take down additional properties using the equity in your rentals or non-owner occupied properties that are waiting to sell. I can take a look at your deal and let you know what we could do. In Oregon, I'm not able to do 1-4 units without being licensed but since you are acquiring a 6-plex, then this is something we may be able to support. Feel free to DM me. 

I don't lend in NY state and we wouldn't lend (in 2nd position or 1st) without a lender's ALTA extended title policy as @Jay Hinrichs mentioned. It's not safe for any private money lender to do a loan without the "complete" title work the OP is referencing. We'd need a new title commitment issued that safeguards us as a 2nd lien holder. I've seen too many issues with lenders ending up in a subordinate position loan but thought they were in 1st but the gap period between when title was ran and the loan closed/recorded allowed for other liens to be recorded and the lender lost lien priority. 

You should check out Larry Andelsman of Andelsman Law in NYC. He's exclusively PML up and down the eastern shore. May be expensive but they are dedicated to private lender law, securities law and creditors' rights. They can definitely tell you what you need to know legally and licensing wise in NJ/NY as there are some restrictions in certain states and I think NJ is one of them. 

Check out my book in the BiggerPockets bookstore - Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending. It's pretty comprehensive on how to get started with your own capital and the safeguards you'd need to take in order to secure your capital investment. Other books are either high level how they got into PML or how to raise private capital (not as the lender). Our book is exclusively on how to safely find and fund private money loans for passive income and secured by real estate. 

I also have a Facebook group called Lend2Live: A Private Lender Collaborative you can join exclusively for PMLs to connect, learn and share best practices. Lots of great experienced PMLs there - both passive ones that do it as a side hustle and small to medium sized PML business owners like me who started out with my own capital and grow over the past decade to have nearly 100 investors. I started out private placement of others capital and then moved over to a private debt fund because of the volume. It just wasn't operationally efficient to continue brokering. At any rate, let me know if you have any questions! I have a event in Vegas in a few months just for PMLs, if you are interested in that! 

You absolutely should lend our your own capital before lending out other's capital. There is a lot of risk and variables to navigate and sort through and I'd much rather learn on-the-job with my own capital than risk others. There's a huge difference between raising capital for a fund (typically a security) and raising capital to broker PML loans through (also known as private placement and in some states not considered a security and in some it is). Also, fractionalizing loans (putting more than 1 lender named on the loan can also be deemed a security in many states. For example, in WA, a debt fund is a security and I have factors to think about when raising capital - 506c has less restrictions than 506b). As other PML veterans here have mentioned, a fund is expensive just to get started. The other part you'd need to think about is deployment of capital and the rate of return you'd give your passive capital investors. When you broker/private place loans, there is not a cash drag to you as the broker in between loans. When you have a fund and a loan comes back, you are still obligated to provide a return to your LPs whether or not the funds are redeployed or not. Also, i would say smaller funds can be economically more difficult with a high expense ratio under say 5-10M AUM (assets under management). It's doable but you'd be doing a lot in house for fund administration and that is a ton of risk. I much prefer outsourcing fund administration, legal and taxes to ensure we play it right and safe. I don't need any agencies coming after me. 

If you haven't already done so, you can pick up a copy of my book Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending off the BiggerPockets bookstore. It won't cover how to set up a debt fund (that's advanced level LOL) but it'll cover all the key considerations you'll need to take when safeguarding your own capital. Let me know if you have questions!  

Grab a copy of my book Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending. It's in the BP bookstore and a comprehensive guide to finding and funding a private money loan safely and secured by real estate. We cover all the ins and outs and detail out the risks associated with lending so you can make better decisions about how to proceed and protect your principal investment! Good luck!

Agree with Chris. I used to arbitrage my second home's HELOC to cover expenses when rates were much lower (prime + 0.75) but now it's expensive and too risky, IMHO. And I have been a PML business owner for a decade so it was an easy choice/chance for us to take and had access to funds to pay it off when rates jumped and our interest earnings was negligence compared to the risk.

If you haven't done private lending on your own yet, I highly suggest you read my book Lend to Live: Earn Hassle-free Income in Real Estate with Private Money Lending. It's a very comprehensive of how to safely find and fund a private money loan secured by real estate that has a lot of equity protection. I also have a FB group exclusively for PMLs and small PML business owners to connect, share best practices, learn from each other. It's called Lend2Live: A Private Lender Collaborative. 

Depends on the state but it ranges from $800-1500+ and, as Chris mentioned, we have the borrower pay for out of the gross proceeds of the loan. Doss Docs are cheaper than Lightning Docs from Geraci and they can cater to junior lien positions and cross-collateralizations, too. I always prefer to have a local attorney experienced in PML in that state. What state are you lending in?  

I have an event coming up in November for private money lenders (one for passive PMLs who are doing it as a side hustle and one for experienced small- to mid-sized PML business owners) in Las Vegas. If you are interested in learning more, DM me!

Pick up a copy of the book Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. It's available on the BiggerPockets bookstore and helps explain how to fund the loan properly and legally. A promissory note and deed of trust are important but there are also other disclosures and documents you should collect to help protect the loan - Lender's Title Policy in 2nd position behind the bank loan, Loss Payee on the hazard insurance policy binder behind the mortgage lender so your parents get reassurance they'd be paid back if there were any claims that need to be made. Non-owner occupancy and business use affidavit are also important as usury limits in California are 10%. I know this is between you and family but just so you and others know, that state actually has licensing requirements for private money lenders. There is a carve out for one loan by a PML per year but thought I'd throw that out there for others reading this post, too.