How do you find private money lender who I can borrow from and pay a preferred return for three years backed by equity? I have always borrowed from a bank using my money as the down payment. I have scaled to where I need a private money loan to help with part of the down payment and closing cost for a apartment complex with great NOI. Any private money lending or borrowing advice would be appreciated.
Go to local REIA meetings and network. If it’s a good deal and you make connections you may find funding depending on the amount and terms. 3 years is a longer time period than many private lenders prefer. Expect to pay a few points and double digit interest rates.
create your own syndicated deal...
I too am in the same position as @DJ Morse, if anyone else could shed some light on this subject it would be much appreciated on my behalf. Thank you
Thank you for the advice. I will look into REIA meetings. What type of time frame or structure would a private lender prefer?
It sounds like you need a syndication, not a private lender. Google it.
You will give up 50-70% of equity in the deal, but you will move into a bigger league. You will kinda be a the manager of the baseball team instead of throwing the ball up in the air by yourself. Both are ok, but it depends on what you want to do.
Study more on the difference between private equity and private debt. Both are great tools if used properly. Both are awful if deployed incorrectly.
If you haven't read/listened to a book on RE finance hurry up and start reading yesterday!
Great question! My favorite ways to locate private money lenders are and have been:
- Word of mouth - talk to title companies, mortgage companies, real estate agents. They know who the people with money are. Tell them to give them your contact info (if they don't want to give your these money partners info,) and when you talk to them, either way, invite them for coffee or lunch.
- Research public records for recent cash sales - look up closely these cash sales. Any notes or mortgage security instruments recorded, that are not the usual bank mortgage? The buyer could be a private investor/lender or secured private funding from private lenders.
- "Self directed IRA meetings" ... google that, plus your location - go to the website for the self directed IRA trustees in your area and look up when they have their live events and meetings. These trustees are always out there trying to get IRA holders on board to invest. They are basically doing that work for you. :) Attend these meetings and network.
Once you talk to possible private lenders, you need to answer their questions, before they even ask them. That way they will feel more confident about you. 3 important questions:
- How is their money protected?
- ROI and time frame? (Personally 8-10% and 1 year for fix and flips)
- What if they have to liquidate quickly (need the money) or you cannot sell the property?
There is plenty of private money out there. :)
I'm still learning about syndication. I found a private money investor today with 10% interest on principle for two years. The problem was he wanted 2x the equity as collateral. With syndication I would pay interest and split the cash flow? As an example if the deal was 3,000,000. The property cash flows $160,000 including all expenses and a mortgage 20 years at 5.5%. You have $450,000 of your own cash for down payment and closing costs. However you need to raise another $330,000 to close on the loan. What would be the best structure for this deal? My goal is to pay off the $450,000 once i liquidate a few properties.