@Joanne Eriaku the first thing a Hard Money Lender (HML) and a Private Money Lender (PML) (lumping them together for now, but I'll get back to that in a minute) care about is the Return Of Their Money. The second is the Return On Their Money.
In order of importance (at least for me):
- The Deal - We want to know What you're buying; Why you like it; What your exit plan is; and How long it will take. I will trust, but verify everything you tell me based on my experience and opinion. I want you to make a profit on every deal, so if I don't think it's a good deal for you, I will not do it no matter how excited about it you might be. I recommend you listen to your HML/PML. Most of them know what they're talking about or they wouldn't have the money to invest in your projects. They can see things you might not be thinking about... at least in the beginning. We want to you to use our money again and again, just like shampoo, rinse and repeat, and if you don't make a good profit on the first deal you will never want to do it again.
- The Borrower - I want to know your experience; Yes, REI education counts, but not as much as a completed project. When you've completed a project, you've proven to me you can persevere through all the challenges that came up along the way... and there will be many, many challenges. I want to know you'll finish the project and I won't have to take it over to get my money back (see what we care about the most above). Will we invest in a first time Flipper's project? Sure, this is a Deal first business, so if the Deal is good enough we will do it, but we might want to be a little more actively involved in the project to make sure it stays on track.
- Reserves - Can you service the debt, along with completing the rehab, staging the property, and marketing it for resale? For however long the project will take? Having a JOB outside of being a real estate investor helps. Hiring a Contractor helps. In fact, I require a local, licensed, bonded contractor submits an estimate on all rehab deals even if you will have your brother-in-law do the work for you. Its extra insurance for both of us... just in case. I'm looking for 3 months reserve - payments and draws; FYI, you will pay the contractor their draws out of your reserves and get reimbursed from the escrow funds, if I've put money up for the renovation.
- Credit - We check credit. Credit isn't necessarily a Deal killer, but it can affect rate/term. We want to know you make your payments and will pay us back (see what we care about the most above). The Deal and your Experience will trump Credit.
We need not see anything fancy, spreadsheets and power points are overkill. A phone call or email telling us about the Deal is good enough in the beginning. A single sheet executive summary is about all I want to read that isn't a CDNA/Appraisal with Comps, Inspection Report or Contractor Estimate... Deal specific details.
We want you to be responsive. When we ask for a document or additional information, we want you to get it over to us quickly. Most of us have a list of documents we need on every deal, we'll send it to you in the beginning and expect you to work diligently to get us ALL the docs without us needing to ask for each item again and again.
We want you to have the Deal locked up, this means under contract. Time Kills Deals, we want you to have urgency to get it under contract. We want you to have urgency to get it rehabbed, listed, staged, and sold. We want you to have urgency to go find another Great Deal! We want you to be a SUCCESS!
@Brenden Mitchum makes some brilliant points above about the difference between HML's and his opinion of PML's. I feel like his description of a PML is more suited to what I think of as a Private Investor. That is somebody who has the money to do your Deal, but may not have the experience to understand that it is an excellent investment. This person needs a presentation to show them it's value. These people are all around you, and you should be developing relationships with them every day. You can and will provide them a wonderful service by putting their lazy money to work and getting them the true returns they wish their mutual funds could provide on a regular, repeatable basis.
When I think of an HML/PML, I think most of them come from the Real Estate Investor side of the business and over time, for various reasons, started lending their money out for other Investors to use on their projects. Each of us has distinct skill sets. Some are good at Attracting Great Deals and Great Buyers. Some are good at Attracting Money for Great Deals and Great Investors. Sometimes you find someone who is the complete package and is good at it all sides of this business (BiggerPockets is full of this last, rare breed). But even then, they probably don't do it all because they have a part of the business they enjoy the most and they will get somebody else to do the rest.
It has been my experience that just by being a successful real estate investor, over time, you can easily end up with access to more capital than deals. Just wait and see, soon you will be at some non-industry event (birthday party, soccer game,...) and when asked what you do for a living, without thinking about it, you will say "I'm a real estate investor." And the person who just asked you what you do will reply - "Oh, I've always wanted to do that! I've got $xxx,xxx sitting in my (insert lazy money storage vault of your choice). Can you help me invest it in real estate?" And just like that, you have your first Private Investor in your real estate business. Add a few more, and you will start looking for other good Investors that can help you keep all this capital working. You just added a new role in your business... Private Money Lender.
@Joanne Eriaku you're on the right track and will have a wonderful career if you stick with it. Stay enthusiastic, stay positive, even when the sewer backs up, and you find an attic full of asbestos, and a basement full of mold. It's worth it, I promise!
All the Best!
