All Forum Posts by: Beth Johnson

I've been turned down by national banks when they confuse our business with title lending or payday loans. As other PML business owners here have commented, this isn't uncommon in our industry but you can certainly find local or regional banks that would be easier to do business with and not require an audit - haven't heard of this before. We use Key Bank for our origination business and US Bank for our debt fund accounts, which allows us to sweep into a HIYMM account to reduce drag, which we weren't able to do with Chase. 

If you don't want to get your lenders in trouble, pick up a copy of Lend to Live in the BP bookstore for both of you to educate yourself on how to do it the proper way so that it's a true business transaction and not cutting corners just because you know each other personally. 

I've been a private lender in Seattle for 10 years and have never heard of them. Their website shows a downtown Seattle address that is likely a condo and not a business office. But on their FAQ they mention payday loans as well as real estate loans and goes on to talk about Alberta and other provinces in Canada, not Seattle or the US, in general. Things seem a bit fishy and some yellow flags that I always see on websites like this one that are possibly either scammy/fraudulent or, at best, just brokers without direct access to capital, are things like: 

- All stock photos and not a single team or officer photo

- Range of loans that are super small ($100 was listed as payday loan in the FAQ) all the way up to $30M. That's a huge range. Most legit lenders will have a much higher loan minimum because the same effort is extended on small loans as it is on larger ones (within reason) so most lenders tend to avoid smaller ones that are less profitable. Not to mention that most HMLs won't offer payday loans AND real estate loans. 

- Zero personalization to their site and no names for any specific contacts to reach out to

- Bogus reviews. It shows about 10 of them all in the last two weeks despite saying they've been around since 2005 and all of them are with super generic names (Smith, Doe, Williams, Johnson, etc.). Can't even find them on TrustPilot where they say they have 3000+ reviews. 

Run, Forest, Run! 

@Thomas Richardson As @Mike Grudzien mentioned, reading my book doesn't exactly tell you how to "pitch" to private lenders but it does help you understand how to present deals to novice or new PMLs within your network by being able to show them how you'd protect and safeguard their capital with things like equity protection, title insurance policy, loss payee on your property insurance policy, going through a third party title and escrow or attorney to close the loan, etc. I find that if you are able to help people within your network navigate the complexities of private money, they will be less apprehensive and less likely to ditch you at the funding table because they get skittish. Most PMLs are less experienced in real estate than the borrower so they need to be brought along for the ride. This will make them "sticky" on future projects because they feel you are educating and protecting them. 

Other tips to raising PML would be to establish your online social media presence. Share out stories about each of the deals you've done, projects that you've underwritten and passed on (and reasons why) so that prospective PMLs within your social network can see what you're doing and pique their interest in getting involved. When people express interest (no pun intended), you should have a package prepared to share out (not right away necessarily - but after you've entertained the topic at a high level) that includes your project experience (past flips) and schedule of real estate (rentals) as well as settlement statements that can back up your purchase price and exit. Being able to have this ready to share out can build trust and credibility and should be ready at any moment's notice. 

Hope this helps! And thanks for your support in buying our book! 

If they have other property (outside of a primary residence) then it could work out but you have zero equity protection and going in 2nd behind hard money provides all sorts of risks and issues, even if they allowed you to. Additionally, since this project is already in flight, you run the risk of mechanic liens taking priority over your loan as they can backdate the lien to when work commenced. 

By the way, if he purchased it in Sept and he's just now seeking additional financing, you should question this a little. Did he mismanage the project this far and needs more cash? Does he have solid history with the HML? This all seems like a bad idea for most private lenders let alone novice ones. If you are new to this type of investing, I suggest you pick up a copy of Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending published by BiggerPockets. It's a comprehensive guide to finding and funding a private loan in a safe and secure way with all the key considerations you need to be aware of before sending money to anyone. And on that note, never send money directly to a borrower! I always do my transactions through a third party title and escrow company or real estate attorney. This helps safeguard your transaction and you need a title insurance policy protecting your loan as well. I'm one of the authors of the book so if you have additional questions, just let me know! There's a Facebook group you can join just for PMLs called Lend2Live: A Private Lender Collaborative.

Check out LendingWise which has a lower monthly cost than most loan origination and management software. It has the ability to set up custom workflow, manage documents (including a doc portal for borrowers to upload), servicing management, auto-document generation, and email templating for streamlined communications with vendors like title and escrow, insurance agents, borrowers, and investors. 

Others have mentioned using ABS/The Mortgage Office but I would steer clear of them. Too high of a cost and no workflow management, horrible leadership and customer service, too. I had to abandon their origination software after spending 6 months and 5-figures on it. Not a good experience at all.

If you want others to compare, check out Baseline and The Mortgage Automator. I would not think you need to go this route unless you are managing more than 25-50 loans annually, though, due to the cost. I was up to about 45-50 before I stopped using spreadsheets and Office/Google.

No matter which side of the lending transaction you are on, you will want to consult with a local RE attorney and get docs drafted up by a professional to make sure you stay legally compliant and have adequate protections both as borrower and lender. 

Yes, you'll absolutely need one drafted up for each different state you might be purchasing in. As Chris mentioned, getting an attorney locally in each state will ensure that you and your family/friends are well protected. While private money isn't highly regulated at the federal level, there are subtle nuances to be aware of in each state that may trigger your loan becoming a security and then the SEC would have regulations to consider. Some states have licensure requirements for private lenders including California, Oregon, Idaho, Nevada, Arizona, Virginia, Florida, the Dakotas, Vermont... that may not be an inclusive list. But if you are pondering investing in any of these states, then you will want to get counsel locally to make sure you are doing it legally. 

There also is a lot more than just a promissory note and deed/mortgage to be drafted up so you might want to pick up a copy of my book Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending available on BiggerPockets. It's packed with the information both you and your lenders will need to complete the deal in a safe manner. In fact, if you provide a copy to your family/friends who are interested, you would be showing them that you want full transparency and protections on your transactions and treat their money as if it were you own. 

You should both read Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending. It's published by BiggerPockets and goes in depth on the do's and don't's of private money lending from the lender POV. If you want to protect your friend's capital as if it were your own, you'd want to:

1) Secure the loan with real estate in the form of a deed of trust or mortgage (depending on the state the property is in)

2) Obtain property insurance binder with your lender as an additional insured

3) Obtain a lender's title insurance policy protecting them (different than an owner's policy) and transfer all funds through an escrow closer or real estate attorney (depending on the state, the requirements for closing may differ)

4) Use a real estate attorney who also practices private lender law in the state the property is located in. Don't utilize a title company to create these documents and definitely don't google for any doc templates on the internet. That's not super thorough or safe for either of you. 

5) Use a third party loan servicer to make your monthly payment collections easier as well as the end of year tax documents needed. Time saver for the both of you. 

That's just the tip of the iceberg but a small snippet of tips that you can get out of this book. 

Good luck and LMK if you have additional questions! I'm one of the authors of the book and own and operate a PML business with my husband :)

Please check out the book I co-authored called Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending published by BiggerPockets.com/lendtolive. It's a complete guide to all the key considerations you will need to make and the provisions you'll have to include to ensure your loan is safe and secure. We discuss loan rates and terms, documentation, and the entire process to find and fund a loan through our C.P.R. Lending System. We also discuss all the key players you'll need to create your virtual team because private lending is a team sport. As mentioned already, the most critical would be a real estate attorney who is also well-versed in private money lending. If you ask them usury rate in your local state and they hesitate, then they likely aren't super familiar and only dabble in it. We provide a bunch of supplemental materials including an attorney interview guide. Hope this helps!