Private Lending for Rentals
Hi, does anyone have a way of getting in contact with Quest to find private lenders? I find deals in my town but need to learn how to find private lenders for the deal.
Not sure what Quest is, but private lenders are everywhere. TX is an easy market to lend in. Are you working with a mortgage broker?
Cheers!
If you are talking about Quest Trust Company, they have meetups in Dallas. You have to go and meet the people so that they will become friends and trust you and your deal. I have been to a few in Austin, Houston and a few online. I have met a few people. One couple just lent us some money for a rehab. Light rehab, great price, tons of equity. Everyone will have their own idea of what a good deal is and isn't. They did pass on a deal in the past. They said the area was too rough. It was. We borrowed from another friend, rehabbed it and it sold in just a few days.
My wife and I love to meet people and learn about them. That is why we make new friends so easily. Of course we tell them what we are doing in real estate also. When deals come up, we ask around to the many friends we have met over the years if they want to earn X.X% interest on their money that they have sitting in the bank(or at Quest Trust Co.).
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Quote from @Rick Pozos:
If you are talking about Quest Trust Company, they have meetups in Dallas. You have to go and meet the people so that they will become friends and trust you and your deal. I have been to a few in Austin, Houston and a few online. I have met a few people. One couple just lent us some money for a rehab. Light rehab, great price, tons of equity. Everyone will have their own idea of what a good deal is and isn't. They did pass on a deal in the past. They said the area was too rough. It was. We borrowed from another friend, rehabbed it and it sold in just a few days.
My wife and I love to meet people and learn about them. That is why we make new friends so easily. Of course we tell them what we are doing in real estate also. When deals come up, we ask around to the many friends we have met over the years if they want to earn X.X% interest on their money that they have sitting in the bank(or at Quest Trust Co.).
Rick does Quest offer meetups where they let their IRA clients meet potential folks that could use a loan from the IRA. ??
Hi Nathan!
I'm not familiar with which Quest you may be speaking about, but I can chime in on the private lender front. Unfortunately, right now the lending space is trying to go through a bit of a transition. Hard money lenders are rebranding themselves as private lenders, and that leaves private lenders like us without a way to really identify what we do because it is very different from a hard money lender. Since I'm not sure which version of private lender you may be speaking of, I can talk about how to find private individuals (or their business entities) to fund deals.
For newer investors, their first private lender is likely someone already established in their network.
If you are borrowing from friends/family and plan to pool their money together in an LLC that is not secured, you will need to research state and federal law related to this type of activity as that could be considered a security in your state and/or potentially subjected to SEC regulations associated with a pooled mortgage/debt fund or private equity fund (syndication). Additionally, you should consider how long your friends/family are willing to have their money out to you. If you use DSCR loans as permanent financing, you could be locking yourself into loans with stiff prepayment penalties that usually have a 5-year prepayment step-down penalty. If your capital investors want their funds back before year five, consider how you might be able to pay them off earlier than your refinance would allow.
While borrowing from friends and family is typically the starting point for most people when finding private money loans, it's also the quickest way to sink relationships, if not done correctly or as a true business transaction. I find a lot of people just assume that since they inherently trust their friend/family member, a lot of the "what ifs" and worst-case scenarios are not hammered out in fine detail which can lead to confusion and personal interpretation after the deal is closed, which it should have been addressed pre-emptively before the money was lent out.
So my recommendations are 1) get an attorney involved so you know what your able to do legally and s/he can draft up the proper legal documentation to support the path forward, 2) consult with DSCR lenders to understand your prepayment penalties and bake that into your exit strategy with your private lenders, and 3) consider the cost of capital in relationship terms rather than monetary since that matters more than getting the money. You don't want to burn any bridges by miscommunications or not properly addressing resolution paths, buy-outs, exits, etc. in a legal manner on paper and signed by parties. If you and your family wants to become more educated in how to transact this loan safely, you could check out BP's newest book - Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. I happen to be one of the co-authors and an experienced private lender. Bottom line, if you plan to pool funds so that you don't have 2nd, 3rd, 4th liens, then you will need to tread lightly and ensure all parties involved are on the exact same page so that no one gets hurt/annoyed/disappointed/angry after funds are already tendered.
If you meant something more along the lines of a hard money lender, that will have a very formalized rate and term sheet, likely a lengthy application and online portal, those can be found on the forums here at BiggerPockets, and also referrals from other investors in your chosen market. These lenders are likely going to be looking mostly at the property, but the borrower will also be a consideration. Some require minimum credit scores, others will not even pull credit. Make sure you understand the lending terms, what you are paying when, and if there are any funds being held in escrow for renovations you really know what the process is and how long it takes to get access to those funds.
I hope that helps!
@Jay Hinrichs the events are kinda networking as well as educational. There is always time for the two groups of "have money" and "need money" to mingle.