Houston Private Money Lenders

[Cameron Tope]

BP Community,

Any recommendations on reputable private money lenders (not hard money lenders) in the Houston area? 

Thanks in advance,

Cameron

[Don Konipol]

I have found that overall a "professional" private lender will have rates about 2points less than a hard money lender when both interest rate and points are taken into consideration.  An individual with money to lend can lend it through a wide variety of hard money lenders and earn 10 to 12 percent, so the private lender "happy" with 6% on his money, as told by real estate gurus are far and few between, if they exist at all.  That person would have to either have a non economic reason for making a loan at less return than he can get elsewhere ( like he's your grandfather ) or be financially naive.  

I have discovered that a number of real estate gurus, mentors, pitchmen, etc. when reporting that they are able to obtain private money at 4 to 6 % are lying by omission. Their actual deal is a fixed interest rate PLUS a preferred percentage of the profits return to the private money. 

The main argument seems to be that bank interest rates are 1%, so 5 or 6 percent on a real estate loan is great by comparison.  The problem is that the two investments are not comparable.  The bank is a guaranteed return of capital by a agency of the Federal government, as risk free as you will get.  The private loan is based upon many risk factors such as the honesty of the borrower, the experience, knowledge and ability of the borrower, the value of the property, the ability of the lender to correctly value the property, and the legal framework of the state and Federal government regarding secured loans.

For the person who puts his money in the bank, at 1%, can get his money back anytime with no hassle, problems etc.  The same individual who lends money to an investor for a real estate deal can end up spending a great deal of additional money if he needs to foreclose, if the borrower files bankruptcy, if he gets the property back in disrepair, if the investor does improper or noncompliant improvements to the property, if tenants damage the property, if the county condemns the property, if there's a title issue and the title company doesn't cover it, and about two hundred other things that can go wrong.  To compare interest from a bank with interest return on a loan to a real estate investor is comparing a no risk investment to a high middle risk investment.  And a 4 or 5% differential is nowhere near enough premium to compensate for the risk.