Completed my first private money loan deal
It's in the books!
I posted on BiggerPockets almost a year ago asking for help - should I lend money to two rookie investors who were needing at least $12k to finish renovations on a foreclosure flip... https://www.biggerpockets.com/forums/49/topics/358...
After careful consideration, I ended up lending $15k on the deal at 12% interest and no points. I got security with a first-position lien on their property. Drew up all the documents myself and did manual research on title / taxes... wanted to keep my overhead low!
Everything felt a bit risky, but I was comfortable enough with the investors and the property, and I was covered on security - and it ended up working out nicely! The property sold right at where they originally projected, and I got all of my investment back plus about $1400 of interest profit, with hardly any effort or worry other than the initial effort to sign the deal.
Finished product
Lessons learned:
- They ended up taking a lot longer than expected - so it's a good thing I agreed on giving them a whole year to do it. They were hoping to be on-market within 3 months, and they ended up needing closer to 7. It also took about 2 months to sell. But they got it done.
- Even if trying to be competitive and minimize expenses, at least a small amount of fees/points should be charged to cover miscellaneous items (e.g. I had to FedEx the mortgage release overnight which cost about $30) and getting documents reviewed (if not prepared) by an experienced real estate attorney
- When it's time for the borrowers to sell, make yourself immediately available to the title company. They rarely ever work with private lenders, so communication is key to make sure there are no delays - especially if you're just starting out.
And most importantly...
- Before I scale up and do more deals, I need to spend time learning from professional lenders and experienced lawyers in this field. The lending world is filled with regulations and other potential pitfalls... luckily I didn't run into any significant issues for my first time, but I wouldn't count on it for my second.
Thank you BiggerPockets community for all the resources and discussions that contributed to this successful deal!