Private Money Lending
I would like to become a private money lender and be a partner with a flipper to learn about flipping and the market. What all should I know before talking to a flipper and any legal steps I should do before lending?
Hi @Priya Srinivasan, there are a lot of legalities to lending.
Talk to a local attorney or partner with a lender that is experienced in the arena to handle the origination, processing, underwriting, and closing the loan.
Hope this helps! Let me know if I can be of any assistance.
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#5 Private Lending & Conventional Mortgage Advice Contributor
- Lender
- Los Angeles, CA
Wow. Now that’s a broad question, @Priya Srinivasan. Flipping and lending are completely different animals though it helps to have some flipping experience if you want to lend to flippers, though certainly not required.
I’ve done both, though quickly learned that to make any money as a flipper, especially where homes are relatively inexpensive, you must do it full time. Lending, on the other hand, is highly regulated though it takes very little time per loan and is easily something you can do part-time. It’s also relatively low risk in my view, so long as you loan locally to those you’ve met who are very experienced and full-time. I assume you’re talking about lending your own after-tax or retirement funds -- not brokering, representing lenders (becoming an affiliate), or starting a fund of some sort?
With little to no real estate or flipping knowledge, I would attend some local real estate clubs and get to know some of the local hard money lenders or brokers (and some flippers). Many obtain their funds by selling their loans and should be willing to educate you a bit on evaluating their offers. In fact, I’m on the mailing list of some local lenders here in So. CA and get several emails a day with local loans I could make thru the associated brokers. In our case, however, we meet our own borrowers, evaluate, and fund their deals ourselves. With some narrow rules, it’s a really simple and relatively safe, time-efficient, business.
A few years ago, I published our entire process here in a reasonably actionable form and it’s still about 90% accurate: Becoming a Private Lender
Now that you posted publicly that you have access to money you might be willing to lend, you will get emails from all the crackpots and charlatans. Unless you have an enormous amount of money, Atlanta is a big place with more than enough deals for you. If you can’t drive to see the property and also meet your borrower face-to-face, in advance, don’t make the loan.
Check out Lend2Live on Facebook!
@Priya Srinivasan just curious, what are your goals? I am not a flipper myself - I buy and hold - but I don't think loaning money to a flipper is the best way to learn about flipping.
Thank you for taking time to reply. My goals are to hold rentals. But to raise money for down payment for the next hold, I was thinking flip and fix might give me the cash for down payment.
@Priya Srinivasan OK - this question comes up occasionally, and I just don't think it's that easy to "do a flip" to raise a down payment. Even if you are able to borrow all of the money for a flip... you have to buy the flip, pay for the rehab, and support the closing, holding, and financing costs. The best way to save up a down payment is just to save up a down payment.