Finding Private Money Lenders

[Cyle Harris]

I recently sold my first fix and flip and am looking to do a mixture of the BRRRR method and house hacking with my next deal. In my first deal, I used a mixture of personal loans and my own money to finance purchasing, rehabbing, and all other fees. I've heard a lot of good things from experienced investors (i.e. Mark Ferguson) who use private money lenders to finance deals as a preferred alternative.

My question for the BP Community is: how have any of you gone about finding private money lenders and what has been your experience so far with using them? 

[Heath Ryans]

@Cyle Harris Same happened to me. Typically I get an email of a mention but it didn't come through this time. I just now seen your response.

I love using private money because it's a trust based transaction secured by a solid asset. It's a business deal but it's ultimately relationship based lending. Random people aren't just going to lend money to someone they don't trust. The transaction also helps bring up everyone involved. You have the ability to quickly move on deals which gives you the upper hand in the marketplace. Doing more deals means you make more money. In addition, the individual lending you money also makes a great return on their money and does so much faster than traditional methods all while being secured by real assets. As you do more deals, they make more money. Which means they have more money to lend. Which means you get more deals. See where this is heading? Everyone benefits and grows together.

Being that it's relationship based, you don't have to go through a ton of documentation, appraisals, inspections, junk fees, ect. You present a deal with conservative numbers, explain how you plan to get to point A to point B, the pitfalls that could come up and how you would navigate them, and atleast two good plans of exit (refi, refi at cost, sell at market, fire sale at cost, ect). The individual who is lending should do their own due diligence as well. 

Each loan should be secured at a minimum by a Promissory Note and a Deed of Trust.

Promissory Note should spell out how much you borrowed, interest rate, the time frame, what happens should you need an extension, what happens if you default, ect. See an attorney for more info there.

Deed of Trust should secure their loan preferably with a 1st position lien on the property. If it needs to be in a 2nd position or further down the line, that's fine as long as the individual is comfortable with it.

Rates for private money are completely up for negotiations and dependent on the deal structure. My two dealings were 1) a loan at 10% for a 9 month term and 2) a loan for 1.5% per month with a term of 3 months.

Typical short term loans are 6-9 months at 10-12%.