{"id":151943,"date":"2023-05-12T10:27:08","date_gmt":"2023-05-12T16:27:08","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?post_type=phase-level-3&#038;p=151943"},"modified":"2024-02-13T16:18:09","modified_gmt":"2024-02-13T23:18:09","slug":"find-private-money-lenders","status":"publish","type":"phase-level-3","link":"https:\/\/www.biggerpockets.com\/blog\/find-private-money-lenders","title":{"rendered":"How To Find Private Money Lenders For Real Estate"},"content":{"rendered":"\n<p><\/p>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<figure class=\"wp-block-image size-large has-level3-rounded-figure\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"517\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-1024x517.jpg\" alt=\"private money lender with a stack of money and a calculator\" class=\"wp-image-146966\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-1024x517.jpg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-300x151.jpg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-768x388.jpg 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-1536x775.jpg 1536w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/02\/private-money-lender-2048x1034.jpg 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Private money lenders are a <mark style=\"background-color:rgba(0, 0, 0, 0);color:#089f4b\" class=\"has-inline-color\">great option for real estate investors!<\/mark><\/h2>\n\n\n\n<p><iframe loading=\"lazy\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4521748244\" width=\"100%\" height=\"200\" frameborder=\"0\" scrolling=\"no\"><\/iframe><\/p>\n\n\n\n<p>Most investors would agree that buying an investment property is different than buying your primary home. While a traditional mortgage may make sense for your main home, this is not always the best option for an investment property. So where do you get cash for your real estate investment? One option is to find a private money lender.<\/p>\n\n\n\n<p>Private lenders (or private investors) offer a different way of getting financing and can be a big help when looking for capital for your real estate investments.&nbsp;<\/p>\n\n\n\n<p>But <strong>how do you find private money lenders<\/strong> who may be interested in investing, what is the best way to approach them, and how do they work?<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">What is a Private Money Lender (a.k.a Private Investor)?<\/h2>\n\n\n\n<p>A private lender (or investor) is an individual who uses their own capital for real estate investments. This could be anyone with the financial ability to meet your monetary needs. They\u2019re a private person, not part of a bank or other financial institution, and will deal with you directly when negotiating the terms of the loan.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Private Lenders vs. Other Types of Lenders<\/h2>\n\n\n\n<p>Traditional <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" target=\"_blank\" data-type=\"link\" data-id=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" rel=\"noreferrer noopener\">mortgage lenders<\/a> care mostly about your credit score when evaluating you as a prospect for a loan. That, plus the term of the loan and the amount borrowed, are some of the biggest factors in determining how much you will owe with a traditional mortgage.\u00a0<\/p>\n\n\n\n<p>Hard money lenders care more about your real estate track record than your credit score. They want to be protected by having a first deed of trust\u2014or the primary mortgage\u2014on the property. That means their money is secured by a hard asset. If you don\u2019t pay, the property serves as collateral.<\/p>\n\n\n\n<p>Private money lenders are more relationship-based. They may even be a friend or family member. They often have different approval requirements and may not care about your credit score at all. They also will usually move at a faster pace than traditional lenders.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How To Use a Private Money Loan<\/h2>\n\n\n\n<p>Any way that you and the lender can agree to. You can use it for buy and hold, fix and flip, and everything in between. Lending terms can be short or long-term; money can come in lump sums or installments, with or without interest payments, with profit-sharing or not. The possibilities are only limited by you, the lender, and the creativity you both bring to the table.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Who Are Potential Private Lenders?<\/h2>\n\n\n\n<p>There are three circles of people you can reach out to when you want to find a private lender to fund your real estate deals:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The primary circle: friends and family<\/h3>\n\n\n\n<p>This circle is made up of family, friends, and acquaintances. It could be a parent, aunt, co-worker, the goalie from your soccer team\u2014any individual you personally know. Many real estate investors find their first funding from this circle. Why? Because there\u2019s a low barrier to entry. Also, they are inclined to say yes because they know you and hopefully want to help you with a private loan.<\/p>\n\n\n\n<p>There are, however, negative aspects of raising money from friends and family. They may not be knowledgeable enough to know the difference between a good deal and a bad one. Be very clear about the risks. Ensure your lender has enough money for the deal and can afford to lose the investment if it goes south. Otherwise, the deal may sour the relationship.<\/p>\n\n\n\n<p>This circle can provide that essential initial source of funds\u2014like earnest deposit money. Using money from primary circle lenders gives you time to create value by locating and locking up deals so that you can raise additional money.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The secondary circle: friends of the primary circle<\/h3>\n\n\n\n<p>The secondary circle of investors is the friends and colleagues of your primary circle. The bigger your primary circle, the bigger your secondary\u2014so get out there and make more friends and contacts through the <a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noreferrer noopener\">BiggerPockets Forums<\/a> and other social networking groups. Your secondary circle is, appropriately, the second-best source for raising capital. They\u2019ll generally be receptive to listening to your proposal, given that your primary circle\u2019s mutual contact gave the nod of approval.<\/p>\n\n\n\n<p>But take the good with the bad: It will likely take more time to raise money since this group is less positively inclined to say yes. You\u2019ll need to prove your worth by preparing an investment presentation and meeting investors face to face.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The third-party circle: lenders you don\u2019t know<\/h3>\n\n\n\n<p>This circle consists of people you don\u2019t know personally, like investors removed from your network. This circle is the biggest capital pool you can access, but converting them into capital partners takes the longest since they don\u2019t know you personally or professionally.<\/p>\n\n\n\n<p><em>Related: <\/em><a href=\"https:\/\/www.biggerpockets.com\/blog\/financing-investment-properties?itm_source=ibl&amp;itm_medium=related&amp;itm_campaign=opt\" target=\"_blank\" rel=\"noreferrer noopener\"><em>What Newbies Should Know About Financing Investment Properties (Versus Homes)<\/em><\/a><\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How To Find Private Lenders for Real Estate Investments<\/h2>\n\n\n\n<p>Your journey to <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-choosing-perfect-private-money-lender\" target=\"_blank\" rel=\"noreferrer noopener\">finding<\/a> the perfect private money lender should start with lenders you know and their contacts\u2014or the primary and secondary circles.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Spread the word<\/h3>\n\n\n\n<p>Chronicle your investment activities through social media as a credibility boost among those you already know. It consistently reminds people that you\u2019re a <em>real<\/em> real estate investor and a professional at what you do.<\/p>\n\n\n\n<p>Additionally, call or email people who you already work with, like agents, title company reps, your CPA, closing attorneys, and everyone in between. Chances are you already have a relationship with someone who knows someone who can help you. This method can dig up a handful of small lenders with $10,000 to $50,000 they\u2019re looking to invest.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The hard sell<\/h3>\n\n\n\n<p>Sit down with the potential lender and present your business plan. Have a proper, professional presentation and a pro forma package for them to review. Staying businesslike ensures you\u2019re taken seriously by any contacts who run a bit more formal or private lending companies. Show them why they should invest with you. They\u2019ll want to know:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>What deals have you completed?&nbsp;<\/li>\n\n\n\n<li>What return can you provide?&nbsp;<\/li>\n\n\n\n<li>What deals are you looking at right now?<\/li>\n<\/ul>\n\n\n\n<p>By showcasing your success through social media and other outlets, more individuals will come to you, asking how they can also benefit from your success. With enough experience and success, it won\u2019t be long before you stop seeking out private money lenders\u2014and instead, they seek you out.<\/p>\n\n\n\n<p><em>Related: <\/em><a href=\"https:\/\/www.biggerpockets.com\/blog\/raise-private-money-real-estate-investments?itm_source=ibl&amp;itm_medium=related&amp;itm_campaign=opt\" target=\"_blank\" rel=\"noreferrer noopener\"><em>4 Tips to Raise Private Money for Your Real Estate Investments<\/em><\/a><\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Seeking Out Lenders You Don\u2019t Know\u2014Yet<\/h2>\n\n\n\n<p>Eventually, you might get to the point where two to three awesome lenders are helping you complete deals left and right. But what happens if you happen to lose one\u2014or even all three? It\u2019s never a bad thing to forge relationships with lenders. Before connecting with these individuals or companies, you\u2019ll need to go out and find them. Here\u2019s how:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Network, network, network<\/h3>\n\n\n\n<p>Attend every local meetup you can\u2014whether at your city\u2019s real estate club or a BiggerPockets meetup. Also, go to your local chamber of commerce meetings and any real estate-related conferences you can find. Put yourself out there and ensure those who previously didn\u2019t know you get to and want to work with you.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Public record search<\/h3>\n\n\n\n<p>If networking isn\u2019t taking off and you don\u2019t know anyone with money, try searching public records. Each time a mortgage is made, the related documents are publicly recorded, and you can find the information online or in the public records building itself. You can find out who the lenders are on properties from these documents.<\/p>\n\n\n\n<p>Specifically, you are looking for the \u201cgrantee\u201d (mortgage provider) line. You want to find grantee lines that have either a person\u2019s name or a corporate entity name, not the name of a bank. These are potential lenders for your next deal.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Online direct mail lists<\/h3>\n\n\n\n<p>Rather than looking up every property to find the lender, try one of these data broker sites:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"http:\/\/listsource.com\/\" target=\"_blank\" rel=\"noopener\">ListSource.com<\/a>\u2014\u201cprivate party loan\u201d is the key here<\/li>\n\n\n\n<li><a href=\"https:\/\/www.directmail.com\/\" target=\"_blank\" rel=\"noopener\">DirectMail.com<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.melissa.com\/\" target=\"_blank\" rel=\"noopener\">Melissa.com<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/click2mail.com\/\" target=\"_blank\" rel=\"noopener\">Click2Mail.com<\/a><\/li>\n<\/ul>\n\n\n\n<p>You can also have the lenders come to you by posting your real estate deal on the following sites:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noreferrer noopener\">BiggerPockets Forums<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/www.lendingclub.com\/\" target=\"_blank\" rel=\"noopener\">LendingClub.com<\/a><\/li>\n\n\n\n<li><a href=\"http:\/\/lendpost.com\/\" target=\"_blank\" rel=\"noopener\">LendPost.com<\/a><\/li>\n<\/ul>\n\n\n\n<p>What can you do after you have downloaded a list of names from ListSource or DirectMail.com? Reach out to them, of course!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Cold call<\/h3>\n\n\n\n<p>After creating your list of potential lenders, find their phone numbers and give them a call. A basic script you can use when cold calling looks like this:<\/p>\n\n\n\n<p>\u201c<em>Hello, is this John? My name is Anson, and I see you lent money for a project on 123 Main St. My company does similar fix-up projects, and I\u2019m calling today to see if you are looking to lend more on these types of deals and what your loan terms might look like.<\/em>\u201c<\/p>\n\n\n\n<p>From there, the conversation could go 100 different ways. This is a relationship game. Build rapport by talking about projects they are working on, other investors they work with, their kids, the local sports team, or one of a dozen different things. Show them how you bring value, and don\u2019t just pitch. Lenders will be able to see through phony enthusiasm.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Direct mail marketing<\/h3>\n\n\n\n<p>If you don\u2019t want to call, you can send letters. You want to provoke an initial reaction, get them to call you, and start building rapport. Mention the property they lent on, so they know what you\u2019re talking about\u2014and, of course, bring it back to your current deal and that you are currently looking for new private money lenders.<\/p>\n\n\n\n<p>Make sure to include your call to action, asking them to contact you to discuss this further. But use the contact information you find only to build a relationship. Soliciting others randomly for money can be both illegal (for you) and annoying (for them).<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">How Private Money Deals Are Structured<\/h2>\n\n\n\n<p>For buy-and-hold real estate investments, <a href=\"https:\/\/www.biggerpockets.com\/blog\/hard-money-vs-private-money\" target=\"_blank\" rel=\"noreferrer noopener\">private money and hard money deals<\/a> are structured much like a conventional bank loan. The lender puts up the full amount to buy and rehab the property. The buyer repays the loan at an agreed-upon interest rate (often a higher interest rate) and amortization schedule.<\/p>\n\n\n\n<p>These loans are usually for five years or less, with balloon payments at the end. Many times, the lender agrees to refinance the loan at the end of the term because they like the stability of income.<\/p>\n\n\n\n<p>Private lenders can also function as a second mortgage behind a primary bank lender to cover down payment or rehab costs. There are two things to remember when doing something like this:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Be sure your lender understands their position as a second mortgage holder.<\/li>\n\n\n\n<li>Be sure your primary bank lender will allow it, as some don\u2019t because they want some of your skin in the game.<\/li>\n<\/ul>\n\n\n\n<p>You might negotiate a profit-sharing agreement with private lenders for fix and flip deals. In these types of deals, the lender loans the entire amount to purchase and rehab the property. Then, once the property is sold, the profits are split as per your agreement.<\/p>\n\n\n\n<p>There are no monthly payments, and the lender has no say in terms of how the property is rehabbed and listed. But, of course, keep them informed throughout the process.<\/p>\n\n\n\n<p>In both cases, significant amounts of paperwork are drawn up to protect every party. A proper closing is held with an attorney and all monies are properly escrowed or exchanged.<\/p>\n\n\n\n<p>A deed of trust is always recorded, and a promissory note outlining terms and conditions is always executed.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Can You Pool Private Money?<\/h2>\n\n\n\n<p>Yes, you can\u2014with many legal conditions. Laws have recently changed to allow crowdsourcing. Plus, syndications, or combining investor monies into an entity such as an LLC, have been used for decades.<\/p>\n\n\n\n<p>That said, while pooling can be done, you need to be aware of state and federal rules. Advertising is a big no-no, for example. You can get into some real trouble if you do not report the right information or structure your dealings properly.<\/p>\n<\/div><\/div>\n\n\n\n<div style=\"height:25px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div class=\"wp-block-cover is-light has-level3-cover-style\"><span aria-hidden=\"true\" class=\"wp-block-cover__background has-white-background-color has-background-dim-100 has-background-dim\"><\/span><div class=\"wp-block-cover__inner-container is-layout-flow wp-block-cover-is-layout-flow\">\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>There you have it\u2014all the ways to find 100% private money. Go out and network, promote yourself, and use any of these creative ways to seek out lenders and get some money to do some deals.<\/p>\n<\/div><\/div>\n","protected":false},"featured_media":0,"template":"","categories":[7403],"class_list":["post-151943","phase-level-3","type-phase-level-3","status-publish","hentry","category-private-money"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3\/151943","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/phase-level-3"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/phase-level-3"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=151943"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=151943"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}