"If They Can't Close in Two Weeks or Less, They're Not a Private Lender."
Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes
"If They Can't Close in Two Weeks or Less, They're Not a Private Lender."
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votesQuote from @Mitch Messer:
There's been some confusion about who qualifies as a private lender versus a hard money lender.
Let me make this SUPER easy.
1️⃣ Private lenders have people names, like Mary, Robert, Maxwell, or Sara.
There's only ONE decision-maker, and the person who talks to you is the SAME person who decides whether to lend you the money.
If your loan contact ever uses the phrase "underwriting committee" you're NOT dealing with a private lender.
2️⃣ Private lenders don't need a month to fund your deal. Once they say "Yes" they just need clean title and prepared loan documents.
If you're contact can't close in two weeks or less, they're NOT a private lender. (Assuming we're not talking million-dollar loans.)
3️⃣ After you close, if you never hear from your contact again, and someone else takes over, you are NOT working with a private lender.
Private lenders stay personally involved until you pay them back their money.
Because ... it's THEIR money!
Now, to be fair, I often hear GREAT things about operations like Lima One, Kiavi, and many others.
But, these are NOT private lenders. They are nationwide hard money lending operations.
#NotThatTheresAnythingWrongWithThat
#ButThereIsADifference
#TwoWeekRule
I don't think this is a fair judgement of what private money is or isn't. I have worked with many direct private money lenders that pool money together from other investors and create a note. I have also worked with lenders that use secured LOCs or Retirement Accounts to lend money to investors.
2 weeks is very little time to close. It DOES happen, but it has to be a very clean deal and borrower. Nothing to do with the financing approval.
LuxePrivate Investments LLC 572 Reviews
9 Replies
- 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Mitch Messer:
There's been some confusion about who qualifies as a private lender versus a hard money lender.
Let me make this SUPER easy.
1️⃣ Private lenders have people names, like Mary, Robert, Maxwell, or Sara.
There's only ONE decision-maker, and the person who talks to you is the SAME person who decides whether to lend you the money.
If your loan contact ever uses the phrase "underwriting committee" you're NOT dealing with a private lender.
2️⃣ Private lenders don't need a month to fund your deal. Once they say "Yes" they just need clean title and prepared loan documents.
If you're contact can't close in two weeks or less, they're NOT a private lender. (Assuming we're not talking million-dollar loans.)
3️⃣ After you close, if you never hear from your contact again, and someone else takes over, you are NOT working with a private lender.
Private lenders stay personally involved until you pay them back their money.
Because ... it's THEIR money!
Now, to be fair, I often hear GREAT things about operations like Lima One, Kiavi, and many others.
But, these are NOT private lenders. They are nationwide hard money lending operations.
#NotThatTheresAnythingWrongWithThat
#ButThereIsADifference
#TwoWeekRule
I don't think this is a fair judgement of what private money is or isn't. I have worked with many direct private money lenders that pool money together from other investors and create a note. I have also worked with lenders that use secured LOCs or Retirement Accounts to lend money to investors.
2 weeks is very little time to close. It DOES happen, but it has to be a very clean deal and borrower. Nothing to do with the financing approval.
LuxePrivate Investments LLC 572 Reviews - Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes1y
@Erik Estrada I don't disagree that there are lenders who pool money to work with investors, particularly for larger deals.
But, that's not the kind of arrangement that most real estate operators I talk to are seeking.
A small-time investor, looking to fund a deal for under $250K, isn't going to be very interesting to these types of lenders, anyway.
Lumping everyone together as a "private lender" is unnecessary and confusing.
If it's a private credit fund, let's call it that. But that's not private lending.
If it's a syndicated loan, let's call it that. But that's also not private lending.
If it's a major national hard-money lending operation, that's not private lending!
When one single private individual is lending their own money to an investor, I'm just proposing we call that person a private lender.
And, that person doesn't need 30 days to fund a closing.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
I view it as call it what you want, it boils down to who are you dealing with and what is your relationship with that person? Some private lenders are awful to deal with as are some funds and some private lenders and funds are great to deal with.
It boils down to the person you are working with and their ability to communicate.
7e investments53 Reviews - Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Mitch Messer Agreed and thank you for posting about something I have felt VERY strongly about for years.
Investors have been using the term "private lender" for decades and it always meant friends family and associates, that often would lend to you on easy terms will based on their trust and respect for you. That is distinctly different from professional business that are national in scope and call themselves private lenders.
They have Co-opted the term and I think it is deliberately misleading.
@Erik Estrada I strongly disagree with your position. People have been talking about using private money long before the category of lender you refer to even existed. This new category plays an important role but it is not what people have meant by private money in the past.
They type of lender I am referring to is clearly different that Lenders that are essentially hard money, they have different terms. qualifications and relationships. So What name would you use for the type of lender I am referring too?
- Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes1y
Quick closings is usually a trait of the PML. But again, it really depends on the definition of Private Money. All the Hard Money Outfits are individuals who raised capital to lend it out. Private Money? Hard Money? Someone cashes out of their 401k and lends the money to a RE investor, insanity, but let's say they do. I guess that's more along the lines of what people are thinking of in terms of Private Money.
But, if you are dealing with a Private Money individual. Do they know RE? Do they know if your plan with this house is even feasible? Do they know you're good for it? Do they know the rates for Private Money?
People get too caught up with Coke or Pepsi. They're very close no matter which one you prefer.
If you are someone building a team, you're in a market and been there for a few years making connections, watching the market, following deals, you now have your contractor, your agent, your wholesaler, your designer, having a private money guy in this scenario makes sense. Someone you can build a relationship and grow with.
For any one-off deal, it really does not matter.
- Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes1y
Quote from @Mike Klarman:
Quick closings is usually a trait of the PML. But again, it really depends on the definition of Private Money. All the Hard Money Outfits are individuals who raised capital to lend it out. Private Money? Hard Money? Someone cashes out of their 401k and lends the money to a RE investor, insanity, but let's say they do. I guess that's more along the lines of what people are thinking of in terms of Private Money.
But, if you are dealing with a Private Money individual. Do they know RE? Do they know if your plan with this house is even feasible? Do they know you're good for it? Do they know the rates for Private Money?
People get too caught up with Coke or Pepsi. They're very close no matter which one you prefer.
If you are someone building a team, you're in a market and been there for a few years making connections, watching the market, following deals, you now have your contractor, your agent, your wholesaler, your designer, having a private money guy in this scenario makes sense. Someone you can build a relationship and grow with.
For any one-off deal, it really does not matter.
Oh, but I think it matters a LOT!
Transaction speed, fee transparency, and direct relationship are the defining hallmarks of working with a private lender.
And, you won't be getting any of that from a bank or a hard-money lending operation!
That's fine: I'm not saying private money is inherently better.
I'm just asserting that private money is different in many important ways!
It's not Coke vs Pepsi: It's Mad Dog 20/20 vs. Dom Pérignon Champagne! 😁
- Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes1y
Not really. I've dealt with many private lenders. They have their process. It's not like, "You need 100k? Tell me where to send it." There's still due diligence to be done on the part of the lender. Are they not looking into the property or borrower?
Everyone advertises the 7 day close and then the fine print it reads a ton of disclaimers on title, insurance, what have you.
- Lender · Playa del Carmen, México · Member since 2014 · 2k+ posts · 1k+ votes1y
Quote from @Mike Klarman:
Not really. I've dealt with many private lenders. They have their process. It's not like, "You need 100k? Tell me where to send it." There's still due diligence to be done on the part of the lender. Are they not looking into the property or borrower?
Everyone advertises the 7 day close and then the fine print it reads a ton of disclaimers on title, insurance, what have you.
This kinda proves my point. The folks I'm calling private lenders don't advertise. They don't have fine print. They don't need disclaimers.
Anyone who has all of that probably isn't a private individual lending their own money.And, if your lenders did take longer than two weeks to close, what exactly were they doing for all that time?
What single individual lender needs more than two weeks for "due diligence?" (Assuming they're not flying out to the property to inspect it.)
You look at the deal. Check out the scope of work. Certainly, vet the borrower. Verify the comps and the ARV. Review the photos. Check references.
Even if you have to pull credit, this all won't take more than a few days, at most.
Meanwhile, is the title clean? Are the loan documents accurate and complete? Are we on the insurance policy as a lender?Then, let's close!
The big national hard-money lenders aren't slower because they are so much more thorough and careful than a private individual.
They're slower because they've got a HUGE inefficient organization with hundreds (thousands?) of employees requiring tons of coordination and cooperation.
And, that's totally fine!
But, these Big Guys are NOT doing private lending.
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