How to find Private Money?

Question

Hey BP,

We do a lot of flips and BRRRRs in Jacksonville FL and San Diego CA. We have a pretty good system right now where we fund with a
combination of Hard Money and Private Money.

Hard Money will fund
90% of the purchase price and 100% of the rehab on a draw schedule. Our Private
investors will fund the remaining 10% of the purchase price, the first portion
of the rehab (to be drawn later from the HML), and the holding costs. Of course,
the private lenders usually want equity.

We want to move to exclusively using private money (on a debt loan) and cut out the hard money. We are capable of pooling together a dozen small investments of $10-20k. Ideally, I would prefer just one big loan from an individual or entity.

What is the best way to raise a ton of private money and not give up equity?

AJ Exner · Answer

Hey Jake,

In my experience, it relies REALLY heavily on networking and referrals. If they don't know you, there is usually a lot of hesitation towards heavily leveraging the purchase and rehab of a home to someone that they don't know well.

This is a good start (posting and being active on BP), but checking in with local REI groups and reaching out locally won't hurt either. I've found that people who have been doing REI for a while might look into doing something like this because it leverages their experience of recognizing a deal without having to be "in" it and doing it anymore.

Good luck!

Kenny Simpson · Answer

Hi Jake,

I have plenty of clients that are doing what you want and I work with some of the more active flippers/investors in San Diego.  What you are looking for is not private money, it is a relationship with a group, person, etc that is willing to do what you want.  Usually you have to start off with more down and build trust overtime.  My clients that have this have built these relationships overtime and performed so the investors feel very comfortable giving them 80,90 or 100% of the money due to track record and paying off loans.  I don't have a person to introduce you too but I can always chat if you like.  Sounds like what you have is not bad at the moment, you just want that one go to person or company every time.

Jay Hinrichs · Answer

if your looking for 100% financing and rates under HML rates I think that is going to be  a unicorn and the only folks that are going to do that are folks you know personally and they just want to help you.

U need to pay a premium for that kind of money and then I suspect you will find it.. I do the exact thing your talking about for my clients ..  but not for 8 or 10% interest.. at that point your a capital partner and deserve either equity and quite a bit or a very high rate of return to mitigate the risks.

AJ Exner · Answer

For sure, the "Underwrite" process becomes a bit more personal at that point.

Erik Estrada · Answer

If you are looking for true private money (no broker fee or points) most will not lend at a high leverage. 60-65 LTV max

Now if you have experience, plenty of reserves, and the deal can be 100% financed based on the ARV, then you can present it to a hard money lender and they may feel comfortable doing it.

Nathan Harden · Answer

Private money can be tricky. They will be very cautious as to who they lend money to, and you should be very cautious of who you allow to lend money to you.

Biggest piece of advice, VET VET VET. A lot of slimy people out there.

Jacob Sherman · Answer

I'd go the direct lender route that is NMLS licensed as well as funds and services the loan . What are some of your scenarios looking like ?

Jake Baker · Answer

@AJ Exner

Thanks AJ! Great point you make that these people will need to know me well before investing with me.

How to find Private Money?

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