Deals I Have Funded

It may be useful for me to talk about some of the deals I have funded and how they developed. I have already discussed most of the financial details of the first deal I funded in the first two installments of this blog: Confessions of a Private Lender and Why Do I Lend?. I didn’t mention that it was I who initiated the transaction—I approached the borrower. The principals of the company (the borrower) gave a short presentation on what they were doing at a real estate meeting and I stayed to speak with them afterward. I liked what I heard. We had a few follow up conversations and I made my investment a couple months later. Their model was short sale flips. They made offers on several properties that were nearing foreclosure and negotiated with the banks to get their offers approved. At the same time they were looking for people they could sell the homes to if they could come to terms. This is a model that is currently out of favor—the rules have changed and I wouldn’t fund this type of transaction now. At the time, part of what was appealing was that the term of the loan was very short. The documents stated a 45 day loan period. I was actually paid back on the first loan in 32 days.

I would like to point out a few facets of this deal. I had never invested this way before. I approached the borrower after a presentation at a REIA meeting. I was there because I was open to investment possibilities and the speaker presented an opportunity. Join your local REIA and talk to the people there. Your next partner may be sitting next to you.

Take time to develop a relationship. It was a couple months before I actually committed the funds for this deal. It didn’t take much, just a couple phone calls, before I was comfortable but had this partner pressed for an immediate commitment I probably would have backed away. Remember, I approached the borrower. I was already interested and ready to take action. When someone comes to you your most important job is to not scare them away.

I funded 100% of this deal. The borrower had none of their own money in the deal and they were not required to make any payments until the final sale. I believed they were doing several deals simultaneously and were having success but I didn’t ask them to prove this. I did speak with several investors that had either done business with the principals or knew of their business before I moved to closing. I also spoke with a lawyer at a pre-paid legal service of which I am a member before investing. If you are interested in which one please contact me privately.

My next deal with this borrower was 14 days later. They returned $51,000 and borrowed $47,650. It was the same funds. They knew I had it and since they performed exactly as they said I was happy to lend it again. By far, your best sources of funds for your next deal are your current private lenders. Treat your lenders well and they will stay with you. They may even tell their friends about you and help you raise more than you could imagine. All told I have loaned funds to this group 10 times. All but a couple loans were paid back within 45 days. Three times I was paid back within 10 days. They have also done business with people that I referred to them.

At this point I would like to ask for your feedback on this series. I have shared most of what I intended to but I may be able to further explain certain aspects by discussing specific deals. As I look at my spreadsheet I see that I have funded 40 deals since 2010. There were only a dozen different borrowers so many of the deals were similar but many deals had different structures, even with the same borrower. I like to do deals that have different twists—it helps me learn more about contracts, markets, etc. It is interesting. It also helps me find new partners (I consider my borrowers to be partners). Most of the deals went exactly as planned but there were some major problems. (One court case has been dragging on for more than 2 years and the outcome is still uncertain.) I am willing to continue this series by talking about other deals I have funded.Is that something that would interest you? Are there other topics you would like me to address? If you have an opinion I’d appreciate hearing it.