Understanding Private Lending: Interview with a Private Lender Part 2

by | BiggerPockets.com

Last week I spoke with a private lender who loaned her own money and brokered here own loans. She operates in Northern Virginia and takes great interest in the borrower. Her operation is small and she does not have any time or desire to foreclose on a property thus she tries to ensure she will not have to by dealing with experience investors who have assets and usually money to put into the deal.

To get a little variation on this topic I spoke with a different flavor of private lender. David Williams is a hard money lender located in Utah. The differences between these lenders are more than just their geographical location.

Meet David Williams, Private Lender

David started in the lending business as a conventional lender. He gravitated towards hard money because he started dabbling in real estate investing himself and quickly saw the demand that private money offered. Through his integration into the real estate investing community, he made contact with both people who had good deals that needed funding, and people with funds who knew the value of real estate investing.

David does not lend his own money, for the most part, and is what I would consider to be a hard money lender . I asked him how he found people willing to put up their money. “Just word of mouth,” was his response. “I just talk about real estate, a lot. I never solicit. I make it known that I am in the business and people just find me and express an interest.” It also sounded like he went to the right places. He attends real estate investing meetings and associates with real estate investors; this is a small community. He said that if someone expresses interest in becoming a private lender he’ll usually start by selling them a performing note on one of his group’s projects. From there the relationships naturally grow.

David is not a large operation, but he’s got some years under his belt now, and is capable of handling multimillion dollar deals. The vast majority of his deals, however, are under a million dollars and he says around 80% of his deals are under a half a million dollars.

There are many pitfalls for private lenders. It takes a great deal of work to find good deals and good investors. Many would-be lenders can get themselves and others in a great deal of hot water. Not too long ago an investor in Utah did just that very thing — this link tells his story. Take a look. It’s a very good example of how things can go bad in this business.

David’s Loans

David does commercial, residential, and land loans. The only thing he will not do is owner occupied loans. His loans are mostly short term – usually under a year in term – but they may go up to 5 years on certain deals. It is really hard to get private lenders to give you terms without a specific deal.

“The price is very risk based,” he tells me. But, David did advise me that borrowers in the market for this type of loan, should expect to pay somewhere in the mid teens for their interest rate, with 3 points upfront (more points if there is a broker involved) on a 6 month loan, and the points go up the longer you need the money.

The loans David likes to see are loans that are less than 65% of the after repair value (ARV) of the property. He wants a loan that is very liquid, meaning that he doesn’t have time to sit on a property in the event he is forced to foreclose. He must be confident that they could take a property and sell it quickly for an amount that will allow him and his investors to come out alright. The time and opportunity costs of a foreclosure are big factors in his lending equation. However, he can loan 100% of the purchase price if the deal is good enough.

The Borrowers

David is far less concerned about the borrower themselves. The property and the loan to value ratio is his biggest consideration. Dealing with an investor who is experienced is just icing on the cake for him. He does want to see realistic numbers for repairs and resale; he also isn’t very much concerned about your team. David doesn’t care if you are planning to do the repairs yourself and has faith that his borrower will get the job done, because he told me, “they have more to loose than we do.” He didn’t say that in a harsh or greedy way. I actually heard compassion in the statement.

How refreshing, I thought – a person can still really get a shot in this day and age – no college degree or family name needed. Go work hard and find a deal and this guy will give you a chance; it’s up to you what you do with that chance.

David says competition for his money is stiff. He can get up to 100 calls per week. He guesses that maybe 1 out of 20 calls are actually a deal he can work with, but, his screening process must really work because he told me that 50% of his borrowers are repeat customers. That is a really good ratio compared to the other private lenders I’ve been working with.

If you have a deal in Utah that needs funding, then David might be your man. He’s got an initial screening questionnaire on the front page of his website, FundMyUtahDeal.com — answer those six questions and he can quickly tell you if you’ve got a deal or not. Good luck!

Photo Credit: http://www.flickr.com/photos/amagill/ / CC BY 2.0

About Author

Justin Pierce

Justin’s work ethics and values are based on his small town western upbringing and eight years of active duty in the United States Marine Corps. He currently resides in the D.C. area. He holds a BA in Management, a Masters in Business Administration and an active Virginia Real Estate Agent license.


  1. Justin,

    Hard money lenders tend to have a questionable reputation, but they do serve a purpose. They can be very useful in certain situations. It makes sense that they do place great emphasis on the subject property’s value and the LTV, instead of on the borrower himself.

  2. Justin Pierce


    I don’t know what you mean by questionable reputation. If you mean they charge high interest rates and foreclose on borrowers that don’t perform then you might be right. But, I don’t see that as questionable. I’ve been using hard money for years and owe my success to them in some degree. I have good credit and assets and I still choose to use hard money. It provides me with speed and flexibility. If I had to rely on banks I would be out of business. In all of my experience with Hard Money lenders I’ve only seen one case where the lender acted questionable and all I heard was the borrower’s side of the story. My later dealings with this borrower revealed him to not be exactly trust worth or competent, so who knows who was really wrong.

    Now you can get some situations where the lender does not know what they are doing, a situation like the one in the link. I wouldn’t call that hard money. The people might have thought they where doing a hard money deal but really all they did was create and investment group by giving that money to an individual with free rain to invest it.

    You are right, they certainly do serve a purpose, and can get stung pretty bad if you don’t keep up your end of the bargain. However, even with private lenders I’ve found that they don’t want your property. In most states it is just too costly and time consuming to foreclose and they are not in the home selling business. Even David William (subject of the above story) went into great length to tell me that he begs his borrowers to work with him if they run into trouble. I intend to cover that advice in a conclusion story in a couple of weeks.

    Thanks so much for the comments.

    Highest regards,
    Justin Pierce

    • Roy Gutierrez

      Hi Justin,

      Thank you for the article, really helpful! I bough passively 5 properties over the last 5 years, quit my job last year and this year looking to become a full time investor. The issue that I’m running in my area is that most of the best deals are being won by investors with cash, auctions have some deals but of course all cash as well. As far as I know hard money lenders can’t help you bring all cash offers to the table, thus losing most of the great deals, what is your suggestion for this scenario?

      Thank you,


  3. Justin, out of curiosity I’ve asked a couple of the hard money lenders I know what their loan default rate is and for the most part it seems to be very small. I would be interested what the lenders you’ve interviewed have experienced?

    Do any of the lenders you’ve interviewed allow investors to get a check at closing in today’s market if the values are right?

    65% of LTV in today’s value is truly a ton less then 3 yrs ago.
    .-= Build Bankroll´s last blog ..What sets the experienced investors apart? =-.

  4. Steve,

    Those are very good questions and I’m glad you ask. I try to keep my posts under 1000 words so I really have to keep the topic narrow.

    From what I’m gathering from private lenders is that the default rate has been pretty high, as an industry. That has been market driven. Patty has had a lot of defaults but David has not. David did say that many of his fellow lenders have been hurt badly recently. Patty and David agree that much of that was a market condition.

    I know one example with Patty where her investor bought the home well, good equity and all that, and the investor was experience but the market dropped 15% in two months and really took his legs out. Although the investor did take way too much time to get the work done. Fortunately the market recovered this spring. Patty worked with the investor and the investor ended up doing very well.

    Yes, these lenders will allow you to get cash at closing. I don’t think they like it, as a rule. But that’s the beauty about private lenders; they aren’t tied by any solid rules. If the deal makes sense then they can do it.

    Thanks again. You have a very nice website.

    Highest regards,
    Justin Pierce

  5. Thanks for the response Justin. I don’t know if I would want to hold paper on any commercial property right now.

    The hard money business is intriguing to me, it’s truly a win-win-win. Lender makes points, investor makes a great interest rate and borrower usually has a great deal they couldn’t do otherwise!
    .-= Build Bankroll´s last blog ..House #14 – Close Escrow 8/5 =-.

  6. Howard,

    The hud-1, deed of trust, and the note, are probably about the only documents that are required for any and all home loan. The thing with private lenders is that they can kinda make up their own rules. Its their money so they can ask for just about anything. They could ask you for a note from your mom if they wanted. You would just have to decide if you would be willing to bother mom for this money. I had a lender that always wanted my wife to sign. I did it on the first loan but then after that I told them I would not do that anymore. I was putting money into the deal and the equity spread was great so it was offensive to me to make my wife (mother of 4 small children and homemaker) come to the closing. The lender agreed.

    You pay for everything. Isn’t that great? One of my lenders charges me 5 points, plus all the regular closing costs, plus $1200 for his attorney who makes sure I’m completely screwed if something goes wrong. And, I am usually getting deals at 50% current market value and then I put down 20% and pay all the fix up myself. I’m the best borrower they could hope for but they still get me. But, its still far quicker and more flexible than a bank. And, this is just the one example. Patty, for instance, whom I wrote about in the first blog of this series, is quite a bit more easy going. It just depends on your lender.

    Those are great questions thanks for taking the time. Let me know if I can be of any further assistance.


  7. Terry,

    Sorry, I missed your comment.

    There is no silver bullet here. Although, you should not be paying just to get on someone’s list, at least you don’t have to. You can go compile your own list. Go to craigslist.com under money to lend or finance, and look in the local paper classifieds under the same title. Start calling people from there. You can also find a good number of proclaimed lenders on biggerpockets.com. I’ve informed all of my lenders about the website and encouraged them to get on it.

    Here’s all you do and the bottom line is it takes a little time and effort, no getting around that. 1) Call as many of these people as you can stand, find out there lending criteria and terms. Many of them will say they don’t want to tell you terms until you have a specific deal. They often act very snooty at first because they have so many people call them. Don’t let that bother you. Compile a list of potential lenders, real life, flesh and blood people, brokers are ok too as long as they have real money somewhere. 2) Go find a deal, a smokin deal. It’s very good if you can raise a little of your own money as well. That helps a lot. 3) Call all of those lenders back with the specifics of this smokin deal. With a deal in hand you’ll find out who the real lenders are.

    Note, try to stay local. Find people who are in your area that you can meet face to face. These people will feel better about giving you a shot if they can actually see the property.

    Note, be professional. Get real comparable sales for your property. Do not try to use zillow. Get a realtor to do a CMA for you. Pay them a $100 dollars if you need to. It will help a lot to seal the deal with the lender and to make sure you’re going into a profitable deal not a blood bath.

    Where in our great country are you? Depending on where you are at I might be able to point you at some good people.

    Highest regards,
    Justin Pierce

  8. Gloria D. Wilson on

    @Justin Pierce – thanks so much for the information on dealing with private lenders. I really got a great deal of information from it – but I do have a couple of questions:
    1) this was part two, what happened to part 1?
    2) Since this was originally written in 2009, is there any update dealing with Private Lenders for 2014 – i.e, private lenders who are not hard money lenders? Is there a protocal; has anything changed since your original post? I am looking for bonafide private lenders for the Philadelphia, PA market – and am trying to educate myself as to the best means by which to contact and work with them. Thanks again for your insight and information. GDW

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