Tell me about your first private money deal?

Question

Hey share how you raised your  first private money or how did  find your lender? How did the deal go?

Andre Brock · Answer

Hey Mike it was a general question just to post and hear stories and to generate some discussion. Me personally I’ve been in real estate since 2005. I wish you could’ve bring some value to the post? But hey maybe next time :)

Jamie Dietz · Answer

I wanted to share a perspective from the private lending (Hard Money) side. I receive loan requests all the time from borrowers who simply aren't prepared. Many ask for specific loan quotes without even having the most basic details ready.

If you're seeking a private loan, be ready to answer the following on the very first call:

Property Address
Yes—know the actual address. You'd be surprised how many borrowers can't recall the property location they're trying to finance.

Purchase Price & Rehab Budget
Understand your numbers: purchase price, any assignment fees, and a general scope of the rehab work with a ballpark budget.

Credit Score & Available Capital
Have a rough idea of your credit score and know how much cash you can contribute to the deal.

Project Experience
Be prepared to talk about your past projects. Lenders want to know if you've done this before.

Exit Strategy
This is critical. How do you plan to repay the loan? Know your ARV if you're flipping, or your rental/refinance strategy if you’re holding.

The more prepared you are from the beginning, the better your chances of securing funding through a private lender.

Steve Balinski · Answer

Its to bad nobody was able to share their first experience. As someone interested in getting into private lending, hearing the HOW would be very useful.  How long did it take networking to find that person who you trusted?  How did you find the attorney for the paperwork? Did the attorney prepare all the documentation, or did they work with the lender and title company? How does the attorney, title co, mortgage co work together, who does what? How much was the first lending deal and what was your due diligence process for screening the lender? etc etc.  How do you inform the lender they have to pay for the documentation processing fees and justify the prices included?  Did you screen the contractor doing the rehab and what does that process look like?  Did the lender approach you BEFORE they closed on the property? etc etc.  So many questions! And I feel like I've done some pretty good due diligence.

Amir Khan · Answer

@Andre Brock that is a fair question and I hear this from beginner to more seasoned investors (like you) all the time.

I raise private money from people with self-directed IRA accounts. Instead of approaching them individually, I collaborate with custodians/administrator of SDIRA and conduct educational workshops about private money lending.

With this system, I have a constant flow of individual real private money lenders (not hard money lenders :). DM me if you have any questions..

Mike Klarman · Answer

There's a difference between raising and borrowing.  You can borrower money from anyone and as long as you act in the bounds of the lending contract and pay the loan in the appropriate time with agreed upon rate, then sky is the limit between two private individuals.  You can agree upon any terms./rate/amount/duration/payment schedule.  In this situation, the debt is on you.  You have default risk and there is a clause that outlines those penalties.

When you raise money, you are recruiting passive investors who are turning over money for a guaranteed rate of return.  You put their money to work for them in real estate.  You live on the spread between the rate of return to the investors and the true rate of return on projects.  To do this, it takes a ton of legal documents and filings with multiple agencies like the SEC and IRS.  If an investor is not "actively" aiding in the pursuit of the return, they are considered passive by the agencies and if they are passive then you need a TON of various documents that outline what exactly you are doing, your investors have to be checked to see if they are accredited or not (that means they have 1 million in liquidity), if they do not then you need extra disclaimers and documents.  Think about it, everything has to be above board and all parties need to be protected.  There's a substantial amount of documents needed that protect the person handing over the money, and also protect the party accepting the money.

Can you do this on a small scale and not get caught following the rules?  I'm sure.  I'm sure two people who do not know each other where one puts up the money and one picks the project and manages do a deal together and split the proceeds.  I'm sure it happens.

Plus remember, it all depends on the definition of active and passive.  If they are NOT aiding in the pursuit of the return then you need lots of legal protection and filings, but if they are aiding in some way.  They're in on emails, they're in on phone calls and share their opinions.  Now they are active and all you need is a JV agreement that outlines responsibilities and splits.

Mike Grudzien · Answer

Well that's a very broad, very vague request.  There are scores of Posts here about all aspects of private lending.

Stanley Yeldell · Answer

Great question, Andre! My first private money deal came from simply talking about my real estate goals with people in my network. I didn’t pitch anyone — just shared that I was working on a flip and needed funding.

A friend of a friend heard and introduced me to someone who had money sitting in a retirement account and wasn’t happy with the returns. We structured it as a 12-month note with 10% interest, secured by a first lien on the property.

The deal went smooth — a cosmetic flip that finished ahead of schedule and under budget. I paid them back early with full interest, and they’ve reinvested with me since.

Lesson learned: money follows opportunity, and people want to invest in something safe and local. Be transparent, have your docs and numbers ready, and protect their capital like it’s your own.

Would love to hear how others got their first lender too!

Steve Balinski · Answer

Any idea how I can find local private money lending meetups or courses?  I've found it so hard to find good info on private money lending and how to actually get started, not just what to do.  I only have 1 REI group near me and they only meet once a month which makes local networking verrrry slow.  I've posted on some local REI FB groups looking for attorneys that deal with Private lending, i found 1 and the cost was nearly 2K to get a contract.  I emailed about 20 local REI attorneys, only got 2 responses.  This is something I'd be willing to pay for a course.

Andre Brock · Answer

Thanks that was really good information.

Andre Brock · Answer

Thanks Amir will do.

Tell me about your first private money deal?

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