Smarter to lend on multiple properties with 1 rehabber, or 1 property with multiple rehabbers?

Question

Hi,

Do you think it is better for a private lender to lend on multiple properties with 1 fix n' flipper or to lend on 1 property with a few different fix n' flippers?

I would think the benefit to lending to multiple people would be that it minimizes risk in case something goes wrong with one of the flippers.

However, if you developed a solid relationship with a borrower and they have proven themselves to you many times in a row, would you put "all your eggs in one basket?"

I'm sure it would be nice to not always have to qualify a new borrower for each property, but I was wondering what experienced lenders opinions are on this topic...

Thanks.

Taylor Green · Answer

Jeff,

Great response as always.

I agree with you Jeff, the more I think about it, the more it makes sense to me to not keep all my eggs in one basket. Your right, it is just common sense.

Thanks again...

Jeff S. · Answer

I would go for a few with a few, Taylor, and I’m not being facetious.  It depends on how much money you have to loan out.  The third variable, you didn’t mention, is the value of each loan.

Bad things beyond anyone’s control can happen to even the most experienced rehabber, so you never want to put all your eggs in one basket.  Instead of larger deals with very few people, I suggest you spread it around a little, but not too much. This is necessarily a vague answer since we can’t discuss specific dollar amounts.

As you develop your lending relationships, you’ll focus on those existing borrowers with whom you’re most comfortable.  Understand too, that they will always be looking for cheaper money and could leave you as their loans are paid off.  You don’t want your business to be compromised by any one borrower.

Also, since it was mentioned, there’s nothing wrong with the BP Marketplace to find local borrowers -- the only individuals you should loan to in my opinion.  You are not licensed however, Taylor, and state law will dictate whether you can advertise that you have money to lend or not. I’m doubtful, and I know it’s illegal in CA, but this is definitely a conversation you want to have with your lending lawyer.

Understand too, that the BP Marketplace is nationwide (really worldwide) and you could unknowingly break laws in another state, or federally, if you are not careful.  Would you get caught? Who knows?  I see these ads all the time and wonder myself.  I imagine this could at least become a defense someone could use against you if you ever had to go after them.  Get some good legal advice and watch yourself.

Jeff

David T. · Answer

When it comes to lending, a track record counts for an awful lot. When it comes to doing rehabs, experience is a huge asset. It also depends on how many projects you want to fund at any one time.

There are lots of very successful rehabbers here on BP who have never lost on a deal. All you need to do to find them is put a posting in the marketplace.