Newbie to Real Estate investing

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Newbie to Real Estate investing

Cheryl J McGrath
Member since 2022 · 59 posts · 11 votes

Hello all you lovely people. Newbie Cheryl here again with a question. 

  Can someone tell me, I've been dealing with private investors with personal cash to invest. What's their procedure on a normal basis?  I do my research and it seems like most of them are scammers. It's really hard to tell sometimes, they are really good. Other than research and common sense. I'm unfamiliar with their practice. 

My experience has been

that, the person on the other end of the email sends me a very informal application, also require a origination fee. They approve the loan. Then they ask me to sign the contract and send the fee requested. Which is usually 5-10% of the requested loan amount. Sometimes they will negotiate the fee, but they want the fee upfront, before they transfer funds to my account. 

Is this how they make money?   I've chose this type of financing, due to a low credit score and very little money of my own to contribute.                          It seems like a rough way to go.  This Newbie would appreciate any information, from all you "Pro's".

Thanks to you'all for being there for newbies like me. It's so helpful and kind of you.... Cheryl

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Randall AlanPro Member
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
3y
Quote from @Cheryl J McGrath:

Hello all you lovely people. Newbie Cheryl here again with a question. 

  Can someone tell me, I've been dealing with private investors with personal cash to invest. What's their procedure on a normal basis?  I do my research and it seems like most of them are scammers. It's really hard to tell sometimes, they are really good. Other than research and common sense. I'm unfamiliar with their practice. 

My experience has been

that, the person on the other end of the email sends me a very informal application, also require a origination fee. They approve the loan. Then they ask me to sign the contract and send the fee requested. Which is usually 5-10% of the requested loan amount. Sometimes they will negotiate the fee, but they want the fee upfront, before they transfer funds to my account. 

Is this how they make money?   I've chose this type of financing, due to a low credit score and very little money of my own to contribute.                          It seems like a rough way to go.  This Newbie would appreciate any information, from all you "Pro's".

Thanks to you'all for being there for newbies like me. It's so helpful and kind of you.... Cheryl

@Cheryl J McGrath

 I have personally seen buyers attempting to buy my properties get scammed this way.  My take was that the people you are referencing are intermediaries (at best), if not scammers outright.  They ‘know a guy’ (private lender) and if you can “cross every T and dot every I” to meet their guy’s lending requirements the loan may go through.  BUT - they are going to try and make their money two ways - one, charging you up front for the opportunity (the deal I saw from my buyer was like a $4,000 fee) and then I’m sure they probably get a cut of the back end if the deal actually makes.  

The problem is, there is no incentive on their part to qualify an applicant (read: they are just as happy to collect your application fee and move on).  Read another way: everyone is “approved”, and once you pay your “application fee” then they start trying to see if they can find a loan for you.  But if you don’t meet the qualifications of any of their lenders your deal will eventually fall apart due to requirements they demand that you can’t meet.  Result: your “application fee” is gone and you got no loan.  So while I don't know if your guy is scamming you, the “system” they are putting you through puts all the risk on your end and nothing on theirs.  I would apply “Craigslist rules” personally - only deal face to face.  Find a local private lender to deal with.  

Try googling “hard money lender” and your city.  Then still keep your “scam alert” senses on high.  But if you can walk into a local office you are probably at least one step ahead of where you are now.

I can see paying a minor fee up front - (maybe a few hundred dollars) - but most lenders charge points against your loan amount (ie. You borrow $100,000 but only get $98,000 because there is a 2 point fee. 

Another suggestion would be to connect with a local real estate investment club / group (usually they meet monthly)  and talk with people there about who they have successfully used.  You are smart to be cautious… there are scams everywhere you turn on the internet. 

As an alternate approach - you could try to partner with someone locally on your first deal. If you find a really good buy you should likely be able to connect with someone in a local group that would go in on it with you.  Or, maybe you even just sell your deal on an assignment basis to them since you don’t have a lot of cash to contribute / make the deal happen - but it might make you $10,000 just to bring them the deal.  We have personally paid assignment fees like that multiple times on flips. 


At the end of the day there aren’t too many free lunches in real estate.  Having poor credit and limited funds can almost be a non-starter to most lenders (even private).  Most everyone is going to want you to have at least SOME of your own money in the game.  That way they aren’t left holding the whole “bag” if a deal goes south.  So a creative approach like working assignment fees might be a way to raise some funds along the way to funding your ability to do your own deals. 

hope it helps a little

randy 

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  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Cheryl J McGrath:

    Hello all you lovely people. Newbie Cheryl here again with a question. 

      Can someone tell me, I've been dealing with private investors with personal cash to invest. What's their procedure on a normal basis?  I do my research and it seems like most of them are scammers. It's really hard to tell sometimes, they are really good. Other than research and common sense. I'm unfamiliar with their practice. 

    My experience has been

    that, the person on the other end of the email sends me a very informal application, also require a origination fee. They approve the loan. Then they ask me to sign the contract and send the fee requested. Which is usually 5-10% of the requested loan amount. Sometimes they will negotiate the fee, but they want the fee upfront, before they transfer funds to my account. 

    Is this how they make money?   I've chose this type of financing, due to a low credit score and very little money of my own to contribute.                          It seems like a rough way to go.  This Newbie would appreciate any information, from all you "Pro's".

    Thanks to you'all for being there for newbies like me. It's so helpful and kind of you.... Cheryl

    @Cheryl J McGrath

     I have personally seen buyers attempting to buy my properties get scammed this way.  My take was that the people you are referencing are intermediaries (at best), if not scammers outright.  They ‘know a guy’ (private lender) and if you can “cross every T and dot every I” to meet their guy’s lending requirements the loan may go through.  BUT - they are going to try and make their money two ways - one, charging you up front for the opportunity (the deal I saw from my buyer was like a $4,000 fee) and then I’m sure they probably get a cut of the back end if the deal actually makes.  

    The problem is, there is no incentive on their part to qualify an applicant (read: they are just as happy to collect your application fee and move on).  Read another way: everyone is “approved”, and once you pay your “application fee” then they start trying to see if they can find a loan for you.  But if you don’t meet the qualifications of any of their lenders your deal will eventually fall apart due to requirements they demand that you can’t meet.  Result: your “application fee” is gone and you got no loan.  So while I don't know if your guy is scamming you, the “system” they are putting you through puts all the risk on your end and nothing on theirs.  I would apply “Craigslist rules” personally - only deal face to face.  Find a local private lender to deal with.  

    Try googling “hard money lender” and your city.  Then still keep your “scam alert” senses on high.  But if you can walk into a local office you are probably at least one step ahead of where you are now.

    I can see paying a minor fee up front - (maybe a few hundred dollars) - but most lenders charge points against your loan amount (ie. You borrow $100,000 but only get $98,000 because there is a 2 point fee. 

    Another suggestion would be to connect with a local real estate investment club / group (usually they meet monthly)  and talk with people there about who they have successfully used.  You are smart to be cautious… there are scams everywhere you turn on the internet. 

    As an alternate approach - you could try to partner with someone locally on your first deal. If you find a really good buy you should likely be able to connect with someone in a local group that would go in on it with you.  Or, maybe you even just sell your deal on an assignment basis to them since you don’t have a lot of cash to contribute / make the deal happen - but it might make you $10,000 just to bring them the deal.  We have personally paid assignment fees like that multiple times on flips. 


    At the end of the day there aren’t too many free lunches in real estate.  Having poor credit and limited funds can almost be a non-starter to most lenders (even private).  Most everyone is going to want you to have at least SOME of your own money in the game.  That way they aren’t left holding the whole “bag” if a deal goes south.  So a creative approach like working assignment fees might be a way to raise some funds along the way to funding your ability to do your own deals. 

    hope it helps a little

    randy 

    2Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y

    If you are finding these people on FB or investor boards, you're probably right, most of them are scammers. I've seen people in my local FB investing group who spend months or years posting and have scammed a few people in my market. They set up fake profiles and I have a hunch they have VA's posting for them in similar groups all over the country, just collecting personal information from people everywhere they can. If they are offering below market rates or 100% financing, they are a scammer. It's easy for newbies to get lured by that stuff, but if it's too good to be true, it defintiely is.

    Go to local REI groups and network- find people who have legit, local references from other investors who have worked with them multiple times.

    Best of luck!

    2Reply
  • Tim Johnson
    Real Estate Agent · Skagit Valley, WA · Member since 2021 · 257 posts · 283 votes
    3y

    @Cheryl J McGrath

    I know this may sound harsh....not meant that way - but if you are not in a position to save some of your own money and raise your own credit score, you do NOT want to be in a position to be repaying hard money loans. Don't believe the story that you can just easily get rich with other peoples' money. Set a goal to live "brutally frugally" for a period of time. Clean up the credit issues. Get some margin. Then it will make sense to jump in with both feet.

    0Reply
  • Cheryl J McGrath
    OP
    Member since 2022 · 59 posts · 11 votes
    3y

    Thank you 

    0Reply
  • Cheryl J McGrath
    OP
    Member since 2022 · 59 posts · 11 votes
    3y

    Thank you 

    0Reply
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