weird to approach an investor about being their private lender?
Investor · Huntersville, NC · Member since 2021 · 52 posts · 30 votes
weird to approach an investor about being their private lender?
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Flipper/Rehabber · Ft. Worth, TX · Member since 2019 · 22 posts · 10 votes
4yMy father once told me "Never loan money to friends; you risk losing both." Having said that, opportunities are everywhere. Make sure you talk it over completely and in detail before loaning any $. Make sure you are in a first-lien position, get proper paperwork drawn up by an attorney at a reputable title company. Know what you are going to do when the property is sold. Know what you are going to do if your "friend" doesn't pay. Talk about interest rate, term, pymt amount, late fees, insurance, foreclosure. Ask your friend to show you paperwork from previous deals. Have the hard conversations BEFORE investing. Good luck.
26 Replies
- Investor · Huntersville, NC · Member since 2021 · 52 posts · 30 votes4y
@Taylor L. Cool thanks!
- Lender · Columbus, OH · Member since 2020 · 202 posts · 214 votes4y
I had a private lender (colleague) do the same thing. I'd assume that's how most private lenders go about it.
Originally posted by @Kellyn Cameron:
Hey everyone,
I was just curious if it would be weird for me to approach an investor that I know about being a potential private money lender for their flipping business. I went to high school with him and just recently discovered that he is flipping properties in my hometown and I really like what he is doing and would love to help fund future deals. Do I just reach out and tell him I am interested in being a private lender on a future flip and ask him to send me some more details about his portfolio?
Kellyn
Yep Easy Peezy. If he couldn’t give you a good return I’m sure there’s others that could. As far as it being an awkward conversation it doesn’t need to be and shouldn’t be. Matter of fact you’re looking to make money on your money and what is he willing to pay.
- Lender · Joliet, IL · Member since 2021 · 33 posts · 7 votes4y
I would! You already have rapport with them. And if they decide not to, the worst they can say is no! I would keep the conversation casual but professional. You want them to see you as the professional you are now, instead of the kid you were in high school.
- Flipper/Rehabber · Ft. Worth, TX · Member since 2019 · 22 posts · 10 votes4y
My father once told me "Never loan money to friends; you risk losing both." Having said that, opportunities are everywhere. Make sure you talk it over completely and in detail before loaning any $. Make sure you are in a first-lien position, get proper paperwork drawn up by an attorney at a reputable title company. Know what you are going to do when the property is sold. Know what you are going to do if your "friend" doesn't pay. Talk about interest rate, term, pymt amount, late fees, insurance, foreclosure. Ask your friend to show you paperwork from previous deals. Have the hard conversations BEFORE investing. Good luck.
- 4yBeth JohnsonPro MemberLender · Renton, WA · Member since 2018 · 227 posts · 216 votes
@Kellyn Cameron
A few words of advice from an experienced PML, as I've seen it all in 7 years doing this.
- don't let a personal relationship give you reason to skimp on the loan underwriting. Knowing something about someone personally doesn't mean you know everything about them professionally or financially.
- be sure to make your loan secured by placing a lien against the property
- always get a personal guaranty and make sure they have net worth that makes a PG valuable
- make sure you use an attorney to help you out on your first deals (and beyond) so that you're legally protected against usury law and default.
I have a few blog posts and articles about this subject, if you are interested in learning more and you can also reach out to me over DM if you have any other questions! Happy to help!
- 4yMike ReynoldsPro Memberconstruction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
Originally posted by @Kellyn Cameron:
Hey everyone,
I was just curious if it would be weird for me to approach an investor that I know about being a potential private money lender for their flipping business. I went to high school with him and just recently discovered that he is flipping properties in my hometown and I really like what he is doing and would love to help fund future deals. Do I just reach out and tell him I am interested in being a private lender on a future flip and ask him to send me some more details about his portfolio?
Kellyn
NC? His name isn't Tony by chance, is it?
Anyway, I would just approach him and see. I used to be weirded out by this stuff but now it only takes a few sentences to figure out if they are even interested or not. I had always heard that people will come to you with deals after a while. I never believed them but it's true. It IS true. It was a pleasant surprise to me. It may be to him also.
- 4yMike ReynoldsPro Memberconstruction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
Originally posted by @Kellyn Cameron:
Hey everyone,
I was just curious if it would be weird for me to approach an investor that I know about being a potential private money lender for their flipping business. I went to high school with him and just recently discovered that he is flipping properties in my hometown and I really like what he is doing and would love to help fund future deals. Do I just reach out and tell him I am interested in being a private lender on a future flip and ask him to send me some more details about his portfolio?
Kellyn
NC? His name isn't Tony by chance, is it?
Anyway, I would just approach him and see. I used to be weirded out by this stuff but now it only takes a few sentences to figure out if they are even interested or not. I had always heard that people will come to you with deals after a while. I never believed them but it's true. It IS true. It was a pleasant surprise to me. It may be to him also.
- New to Real Estate · Miami, FL · Member since 2021 · 1 post · 1 vote4y
Definitely go for it.
- 4yOwen DashnerPro MemberLender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
@Kellyn Cameron, I think I can speak for most investors when I say that they would be thrilled to be approached by someone offering private money!
- Investor · Huntersville, NC · Member since 2021 · 52 posts · 30 votes4y
@Rico Quatro Thank you Rico! These will absolutely be things that I cover prior to lending. This may be something I just need to research more on my own, but how do you decide on interest rate/term? Does it differ for the type of project you are lending on?
- Investor · Huntersville, NC · Member since 2021 · 52 posts · 30 votes4y
@Mike Reynolds I live in Charlotte, but the friend I was referring to is in Wisconsin :) unfortunately he has not responded to my message, but I was able to connect with another BP member in Charlotte that is going to help connect me to some investors looking for capital!
- Investor · Huntersville, NC · Member since 2021 · 52 posts · 30 votes4y
@Owen Dashner hahaha thats kind of what I figured, it just felt weird to reach out over social media and be like "hey! do you want some of my money????"
- Flipper/Rehabber · Ft. Worth, TX · Member since 2019 · 22 posts · 10 votes4y
Talk to some hard $ lenders in your area and see what they charge. Some of them list their terms on their web site. Points, loan origination fee, interest rate, down pymt, term, interest only pymts, amortization schedule (including principal), payoff penalty. It's unlikely, but possible your guy can flip a house in 3 months. If so, you still need to profit enough to make it worth it.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Kellyn Cameron:
@Rico Quatro Thank you Rico! These will absolutely be things that I cover prior to lending. This may be something I just need to research more on my own, but how do you decide on interest rate/term? Does it differ for the type of project you are lending on?
most private money lenders are pretty savvy.. most borrowers think private money lenders should be like their grandparents and loan them money at very low rates.
for the Savvy private money lender rates are between 10 to 20% apr. you get there with points and note rate.. if you charge 2 points for a 12 month loan and it pays off in 6 months your yield just went up. And most private lenders will pass on the doc prep and attorney fee if needed to the borrower and a few other fee's if they are savvy ( we call those junk fees) .
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Beth Johnson:
@Kellyn Cameron
A few words of advice from an experienced PML, as I've seen it all in 7 years doing this.
- don't let a personal relationship give you reason to skimp on the loan underwriting. Knowing something about someone personally doesn't mean you know everything about them professionally or financially.
- be sure to make your loan secured by placing a lien against the property
- always get a personal guaranty and make sure they have net worth that makes a PG valuable
- make sure you use an attorney to help you out on your first deals (and beyond) so that you're legally protected against usury law and default.
I have a few blog posts and articles about this subject, if you are interested in learning more and you can also reach out to me over DM if you have any other questions! Happy to help!
I am going to disagree with the PG statement.. while I get the thought behind it those that have a PG that is actually worth anything normally are going to get the very best rates there are or bank money.. If your loan goes turtle generally the PG is going to be very costly to try to enforce After you have done a full blown foreclosure.. Its OK to get one for psychological reasons don't get carried away on thinking your safe just because you have one. If it goes bad the borrower can just BK and your PG is gone anyway. Character and collateral are your two main weapons of safety for the private non advertising lender.
for instance Beth who posted here is NOT a private lender she is a Hard Money Lender as she holds herself out as a lender through blog posts BP and advertising of some manner.. A TRUE private lender does not hold themselves out as a lender in any manner.
lastly there are 12 or so states that require NMLS and state license to loan any money on a 1 to 4 unit. UNLESS your only doing a few a year some of those states will have a carve out for true Private lenders using their IRA. Other wise they simply need to find someone like Beth who is brokering money for others and most likely in a state that does not regulate 1 to 4 unit loans for non owner occ commercial purposes.
- 4yLevi BennettPro MemberReal Estate Broker · Charlotte, NC · Member since 2014 · 285 posts · 248 votes
I'm more than happy to take your money and give you a return.
- Developer · Charlotte, NC · Member since 2021 · 19 posts · 9 votes4y
@Kellyn Cameron
Sounds like you already reached out to him, but what I like to do is come to people I am interested in investing with and tell them that ‘I have some funds set aside for investment’ and ask if ‘they know anyone who is looking for a private money lender’.
More often than not they will end up telling me that they are interested. I find this approach to put one in more of a position of power than “hey can I invest with you?”.
Kellyn, if you ever decide to be an active investor in Charlotte then we can chat a little more and see how I can be more of a help. I’m both lending AND sourcing my own deals and flipping in Charlotte NC and found this market to be rewarding.
- 4yBeth JohnsonPro MemberLender · Renton, WA · Member since 2018 · 227 posts · 216 votes
@Jay Hinrichs Valid points on the PG since it's two separate legal actions, should your foreclosure leave you with a potential principal loss situation, and possibly could be wiped away with a bankruptcy. Another way to add protection would be to add additional collateral rather than, or in addition to, a PG.
I actually am a private money lender, lending out through my own personal savings and SDIRA. I just happen to also own a business that sources and originates private money loans on behalf of those "truly private lenders" you speak of who prefer to lend out through us for the dealflow, added security, and concierge loan support throughout the loan lifecycle until the principal is paid in full. So, while I'm an originator by day and that is my source of active income, my passive income is through private lending of my own funds as well as buy and hold multifamily. Not sure why that is particularly relevant in the context of this string.
I personally view the difference between private money and hard money by the source of capital more than anything else. True private money doesn't rely on the capital markets, institutional backing, or warehouse lines typically associated with hard money. My business has none of these constraints and we place the lender individually on the Note and Deed, not in a pooled mortgage fund. So, what we provide is technically private money. The differentiation can be debated since the AAPL is moving away from hard money terminology altogether and positioning the alternative / bridge lending space as all private money, which I don't necessarily agree with. But, regardless of private versus direct placement with an originator, or hard money, character and collateral are arguably EVERY alternative lender's biggest weapons of safety, with equity buffer being the strongest protection of principal, not just individual private money. I've seen way too many independent lenders place too much value on the person's character and not enough in the property or project and it's landed them in hot water.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Beth Johnson:
@Jay Hinrichs Valid points on the PG since it's two separate legal actions, should your foreclosure leave you with a potential principal loss situation, and possibly could be wiped away with a bankruptcy. Another way to add protection would be to add additional collateral rather than, or in addition to, a PG.
I actually am a private money lender, lending out through my own personal savings and SDIRA. I just happen to also own a business that sources and originates private money loans on behalf of those "truly private lenders" you speak of who prefer to lend out through us for the dealflow, added security, and concierge loan support throughout the loan lifecycle until the principal is paid in full. So, while I'm an originator by day and that is my source of active income, my passive income is through private lending of my own funds as well as buy and hold multifamily. Not sure why that is particularly relevant in the context of this string.
I personally view the difference between private money and hard money by the source of capital more than anything else. True private money doesn't rely on the capital markets, institutional backing, or warehouse lines typically associated with hard money. My business has none of these constraints and we place the lender individually on the Note and Deed, not in a pooled mortgage fund. So, what we provide is technically private money. The differentiation can be debated since the AAPL is moving away from hard money terminology altogether and positioning the alternative / bridge lending space as all private money, which I don't necessarily agree with. But, regardless of private versus direct placement with an originator, or hard money, character and collateral are arguably EVERY alternative lender's biggest weapons of safety, with equity buffer being the strongest protection of principal, not just individual private money. I've seen way too many independent lenders place too much value on the person's character and not enough in the property or project and it's landed them in hot water.
AS it relates to BP the point I am making is that anyone who is in the business and holds themselves out as a lender broker etc is a HML by definition.. where these BP members get confused is thinking Private money is going to be far less expensive than HML ers. which simply is not the case at least to any actual private lender who knows anything about lending like you do.
And since your in Washington no license required for commercial purpose loans on 1 to 4 units.. in Oregon license is required as you probably know and about 11 other states.
Cross Collateral if the borrower has any is usually better than the PG. Again my point for the BP member who are basically beginners and who we all try to attract like your trying to attract them as clients we all do it myself included.. IS simply relying on a PG rarely makes you whole in an upset recover mission.
For the investor their is the whole note option like you discuss.
in states that it is legal ( like CA ) fractionalized loans arranged by a broker is quite common. This is how I ran my HML company for years I have 300 investors and about 50 million out.. I sold that business and then did what your talking about my next HML gig I used guidance lines from local Oregon and Washington banks plus our own cash that was super clean. Although as you know guidance lines can get called which happened to us in the GFC..
Right now with HML ers is a race to the bottom on points and rates most private money lenders are going to be more expensive than the big HML shops IF and thats a big IF you have experience. I dont use HML very often only when my bank lines are tapped and I have a deal I want to do but 1/2 and 7 to 1 and 8 is easy to get .. NO junk fee's where most borrowers get tattooed by brokers or HML ers is Junk fee's
- Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes4y
Use a lawyer of YOUR choosing who knows how to draft these docs. If you are going to be a private lender, BE A PRIVATE LENDER and not their friend (when addressing transactions). Don't do deals you are not comfortable with. Always do your underwriting before, during, and after the deal. Follow contract terms to the letter.
Doing business with friends can be great! *If* all parties do what is in the best interest of the deal. Things go sideways when parties put their own interests before that of the deal and rely on their "friend's" good will to vary the terms of the contracts.
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Beth Johnson:
@Jay Hinrichs Valid points on the PG since it's two separate legal actions, should your foreclosure leave you with a potential principal loss situation, and possibly could be wiped away with a bankruptcy. Another way to add protection would be to add additional collateral rather than, or in addition to, a PG.
I actually am a private money lender, lending out through my own personal savings and SDIRA. I just happen to also own a business that sources and originates private money loans on behalf of those "truly private lenders" you speak of who prefer to lend out through us for the dealflow, added security, and concierge loan support throughout the loan lifecycle until the principal is paid in full. So, while I'm an originator by day and that is my source of active income, my passive income is through private lending of my own funds as well as buy and hold multifamily. Not sure why that is particularly relevant in the context of this string.
I personally view the difference between private money and hard money by the source of capital more than anything else. True private money doesn't rely on the capital markets, institutional backing, or warehouse lines typically associated with hard money. My business has none of these constraints and we place the lender individually on the Note and Deed, not in a pooled mortgage fund. So, what we provide is technically private money. The differentiation can be debated since the AAPL is moving away from hard money terminology altogether and positioning the alternative / bridge lending space as all private money, which I don't necessarily agree with. But, regardless of private versus direct placement with an originator, or hard money, character and collateral are arguably EVERY alternative lender's biggest weapons of safety, with equity buffer being the strongest protection of principal, not just individual private money. I've seen way too many independent lenders place too much value on the person's character and not enough in the property or project and it's landed them in hot water.
I have been to a few AAPL events in Vegas they are non sanctioned but basic info is OK for the private lender who is not experienced
- 4yBeth JohnsonPro MemberLender · Renton, WA · Member since 2018 · 227 posts · 216 votes
They are definitely more geared towards the institutional lending space / capital markets these days, and less towards newer independent private lenders, but I'm hopeful we're going to change that this year! :)
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