What's the Fastest Way to DESTROY Credibility with a Private Lender?

Question

This week I received a private money funding request for a townhome in Pittsburgh.

The email came with a 13-page PDF presentation. But that's not the problem.

The project requires $180K. They're ASKING for $180K in funding. That's challenging, but not a deal-killer.

They plan to acquire for $110K, rehab for $70K, and expect an ARV of $425K. Hold on there, Sparky!

Seriously?

So, I do a little digging in RedFin and can't find a single comparable sale over $200K anywhere within a half mile of the property.

But, their presentation claims 4 comps for $425K each. So I ask the operator for details.

And HERE's the punchline:

❌ Turns out ALL four "comp" properties are on the same block...

❌ ... in a completely different Zip Code from the subject property...

❌ ... across the Ohio River and two miles away by car!

❌ And, to top it all off, that $425K sale price was for the purchase of an entire BUILDING of seven (7!) townhomes!

Yes, this "DEAL" is officially TOAST!

But, tragically, so is the reputation of the operator who sent it.

Because, anyone can make a mistake. But this is real estate investor MALPRACTICE!

I count at least FOUR major valuation Red Flags that should have SCREAMED "Trouble!" to any serious operator.

This is toxic carelessness, pure and simple. And that sounds like nails screeching on a chalkboard to private lenders.

It's the equivalent of a chef preparing a delicious chocolate cake using BROWN SHOE POLISH instead of frosting. It's sliced and served and you take a big ol' nasty bite!

You'd never visit that restaurant EVER again, right?

Jeremy Taggart · Answer

@Mitch Messer what was the subject property and the comps? I'm curious haha

Mitch Messer · Answer

For now I'll spare this operator the indignity of sharing more deals.

I do sincerely hope this helps someone out there avoid trashing their own professional reputation!

Run your numbers CAREFULLY, people!

Kenneth Garrett · Answer

@Mitch Messer

Hi Mitch, I've been using private lenders for over 15 years. There are a few things that you need to do to earn credibility with your lender.

1. I always submit a 3-4 page explanation of the project detailing the specifics of the investment and the strategy of the project.

2. Always and I mean always tell the truth. The best way to destroy a relationship is to fudge numbers or just out right lie. The private lender needs to conduct their own due diligence and evaluate the specifics of the loan. The information submitted to your lender should be specific enough so that there are no questions or very little. The project should be clear.

3. Communication is critical during the process. If you agree to send reports or communicate on the project then that is what you must do. Even if the project goes a little sideways or a lot sideways. Your credibility is essential not only when things go well, but when things don't go well. The real challenge as a borrower of private money is how you handle it when things don't go perfect and how you manage it.

At the end of the day, relationships and hopefully long term relationships is what make a great private lender relationship.

Mitch Messer · Answer

Amen, amen, and amen!!

The operators that have private lenders lining up to work with them do ALL of the things you mention.

Every operator talks about "commuication " and "building relationships" ...

... but as soon as things get tough most clam up tighter than a gnat's butt!

What's the Fastest Way to DESTROY Credibility with a Private Lender?

4 Replies