Private Money

6 Replies

what are the pros and cons of a private money lender ? I want to buy a vacant apartment complex and I'm willing to pay the 8% of the 20% down that the seller is asking for . 

I like private money myself.

Pros: They don't do a credit check or look into your tax returns so it can be easier to get but it's harder to find

Cons: maybe higher interest rate, shorter terms, 

What are some red flags about a private money lender ? What do I have to lookout for when asking for help from a private money lender ? 

@Christian Garcia From my experience, the number one red flag with Private and/or Hard Money Lenders is junk fees and large pre-payment penalties hidden in the fine writing. Look for a Lender with a track record of dealing with long term clients with multiple loans behind them, that is a sign of a good and trustworthy lender.

Money can be found cheap just about anywhere if you know where to look, but not all lenders will be clear with you on costs and terms.

If you go with a Private individual lender, make sure to have an attorney draw up the proper paperwork.

Originally posted by @Chase Maher :

@Christian Garcia From my experience, the number one red flag with Private and/or Hard Money Lenders is junk fees and large pre-payment penalties hidden in the fine writing. Look for a Lender with a track record of dealing with long term clients with multiple loans behind them, that is a sign of a good and trustworthy lender.

Money can be found cheap just about anywhere if you know where to look, but not all lenders will be clear with you on costs and terms.

If you go with a Private individual lender, make sure to have an attorney draw up the proper paperwork.

 Thanks Chase . Ive been looking at websites that have lists of local private lenders in my area but im still kind of iffy about them . 

Check out my website. www.buydallasinvestments.com. I list my rates there.

First off, what you are trying to do is a little confusing.  Are you saying you are willing to pay 8% interest on the 20% down payment on an 80% loan?  Pretty far from a given that you can borrow that at that rate if I'm understanding right.

Anyway, there is a big difference between a private lender and a hard money lender.  

A private lender is almost always someone you know that lends you their money, thus the term "private".  Anybody that has a business of lending money is not really a private lender.

Private lenders are great, you can negotiate whatever terms you want and none of them think to ask for a credit app or tax returns.  I borrow 100% of my rehabs with no payments pretty regularly.  Private Lending is really more relationship lending.  I secured $380k from my guy on our way back from a bar last week.  Closing on the house today.  The conversation went something like "you up for doing $380k on a new one?"  "same terms?"  "Yep"  "OK".  My first loan was $17k, though, we built up to what we do now over a number of years.

The other great thing about private money is you can use it for things no institutional lender will do.  Like finance the 20% difference on an 80% commercial deal.  Nobody that lends for a living will take that risk on a deal, but your friends and relatives may take that risk on you.

Cons are you are limited by your network and their cash supply and if the deal goes south so does your relationship.  I'm still paying back some relative from my losses when I crashed and burned in 2007.  Christmas at Gma's was awkward there for a bit.  Lots of emotional trauma there too, nobody really mentions.   Losing my money didn't phase me much, neither did a bank loan or two going bad.  Losing people's money I truly cared about wrecked me.

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