Private Money Lenders Legitimacy
I am currently looking at a price of real estate and weighing my options on acquisition before approaching the seller and seeing if a deal can be reached.
Property Details:
Asking price- 2,000,000
51 doors, 86% current occupancy
24,500$ monthly gross
~11000$ current owner stated operating costs monthly
Current owner purchased the property in 2021 for 450,000$
For the first year I would self manage, live on property.
As far as lending, I've considered approaching an owner finance deal with the owner at full purchase price, but I have also looked at a private lender option for full financing at lower than asking price.
My real question is, when looking at the private lenders, and validating their legitimacy, a few require 0 down, at 5-7%, with a 2000$ loan origination fee. Is there a way to validate the company so that I'm not just handing 2k to a company that's going to deny every loan that crosses their table for an easy 2k. Are there recommendations from BP for private money Lenders to use?
I have a few thoughts …
1) a lender offering $0 down on a $2MM purchase, but requesting a $2000 upfront fee is a red flag in my opinion
2) current owner paid $450,000 in 2021 -- what specifically has changed to make it worth $2MM now
3) make sure you get all the operating details and do a thorough analysis before you make an offer; current rent roll, current past due accounts and aging report, past 12 months expense details, property tax statements, any recent capital improvements, any needed repairs, etc.
4) since you are new to investing/ownership, lenders may require 3rd party management
5) as for finding/verifying lenders, have you considered using a commercial mortgage broker? They will have an established network of verified lenders and will know which one(s) are best suited for the specifics of your deal. Here are a few tips:
– Don’t pay upfront fees to the mortgage broker, they get paid at closing for a successful loan
– Get a written contract upfront that spells out what the broker will provide and when (at closing), how, and how much (1-2% of the final loan amount) they get paid
– Be specific with what you are looking for; loan amount, usage, rate & terms, timing, credit, etc. Keep in mind that the perfect loan might not exist. Be prepared to discuss priorities and limits; what are firm requirements versus where you have flexibility.
– Ask for a detailed description of their process, estimated timing, and what you can expect
– Set clear expectations on when and how you want to communicate and receive updates
Hope this helps.
@Brad Hayden this is what I pulled via county sales records. I presume it was a purchase from a mom and pop to an investor looking to flip. I've continued to try and dig deeper by finding BBB ratings etc, and have not produced many results with even some of the top "private money lender" results on Google.
