Private Lending Where/How to look

12 Replies

Hello everyone, where should I begin my journey to find private lenders? Is it best to have a deal already drawn up and negotiated first then present that to a lender or visa versa? What are good ways to build relationships when you have never done a deal?

THANKS!

@Jeremy Willis, I know this will sound cliche but it is really all about relationships! You have to tell everyone you know and meet about real estate investing and what you plan to do! Get to the local REIA meetings and network. Meet people that are doing what you want to be doing.

This is the strategy I used when first getting started and I was introduced to my mentor who freely shared all of his contacts with me and made introductions vouching for me. Now I have several lenders that I have done a lot of deals with! No short cut around this just have to get busy meeting folks!

@Jeremy Willis - Most private lenders will have some parameters that they operate within. I'd start going to meet ups to network directly with them about what there expectations for the deal are: your skin in the game, % LTV, % of rehab costs, points, etc.

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@Stephen Akindona thank you. I am currently planning my goals for this coming quarter. I wanted to reverse engineer a strategy to get into the multi-family side of real estate. Perhaps I’m being too systematic?

@John Bianco I don’t have any reservoir of cash saved. So far banks won’t give me a loan with no skin in the game unless it’s s primary residence and not commercial. I’m all ears for different avenues.

It depends on the type of transaction you are working on. There are private lenders for almost every type of transaction now a days. Depending on the deal, I'd start with local banks/credit unions and see if they are being creative--you might be surprised how flexible some are! If that doesn't work, there are a lot of private lenders you can find via Google and other search engines. Or you an always enlist an experienced broker to assist you. 

Whatever you do, be careful not to pay any crazy upfront fees. If someone promises you something that is too good to be true, it probably is. 

Originally posted by @Jeremy Willis:

@John Bianco I don’t have any reservoir of cash saved. So far banks won’t give me a loan with no skin in the game unless it’s s primary residence and not commercial. I’m all ears for different avenues.

Most HMLs will also want you to have some skin on the game. We for instance will not lend more than 90% of purchase. If you are rehabbing you might also need more cash to start as, for instance, our rehab draws - though funded at 100% are paid in arrears as you complete each stage. Not to mention loan costs such as appraisal fees and of course reserves to service the loan payments until you can flip or rent.

As to when is the best time to get to know HMLs or a broker? Get to know a couple that seem good (or a broker or two) now. Then when you are getting close to having a property under contract and have some numbers and a potential address to present, contact them, submit a loan application form and see which loan terms are ones that are most acceptable to you. They should be able to give you terms the same day you ask. This may help you decide whether to take that property under contract. 

Best wishes on your future endeavours.

Private Money Brokers can be a big help especially if they broker for more than 1 lender. I have 10. I also have a database of over 200 more plus family offices, fund managers etc. So this gives my clients an advantage because I can often get them 2-3 term sheets. One such outcome was getting a client 9.9% instead of 11%. Lenders often discount rates and points if you have experience, more skin in the game beyond 10%, and other factors. Going from 11 to 10 or 13 to 11 helps a lot.

@Jeremy Willis  Hello Jeremy.  Great question.  Private money will come from friends and family that know you and trust you.   Mom and dad would be first, then grandma and grandpa, then brothers sisters, aunts, uncles and what have you. Then next would be friends, your circle of influence, coworkers people who have known you, who’ve you to build a relationship with, business associates.

No you do not need a deal. If you are educated, you need to start analyzing deals and showing your private money investors these types of deals you are looking for in terms that they can expect and walk him through the process step-by-step and this is how you were going to build a relationship with your future private money investor. Start going to your local REIA meeting building relationships with other investors in your local market find out who is in the room who is doing what kind of deals and how can you help them or add value to them and in turn they want to do the same for you. Happy hunting

@Jeremy Willis

You could try working with someone who knows creative financing, like seller financing or subject to.

If you find a 4 plex, you may find the current owner doesnt want the hassle of the property anymore but would be willing to take Your money at a negotiable APR rate each month instead.