How should I approach a potential private lender?

5 Replies

Good evening, all and Happy Holidays! After running into a couple of hurdles in acquiring a loan for a multiunit building (I have an FHA loan and will need 20% down and 6 mos reserves to qualify for a conventional), I'm considering approaching a family friend as a possible private lender. I don't have a particular property in sight yet but I want to approach this family friend to start the conversation. I would like to present the arrangement to show how it could be beneficial to both parties. I'm just not sure how these arrangements are normally structured. Can anyone advise on what will be important to the potential lender? What are the key points to focus on to help visualize the arrangement? Any direction will be be appreciated. Thanks in advance!

Watch the Webinar  "12 Steps to Getting a Bank to Say “YES" To Financing Your Deal" there will be some good tips in there , the rest has to do with your specific audience.

Good luck,

Jeff

Be careful with your presentation of this idea to potential conventional lenders when closing your deal.  Borrowed funds are not allowed to be used to close conforming or government insured or guaranteed mortgages.  The down payment funds must be owned funds.  You will need to source the funds if you close within 60 days of your receipt of these funds.  If the funds you receive are not a gift, you will have a violation of most lenders' guidelines on conforming or government mortgage products.

@Jeff Bentz Thanks, will do!

@Logan Drew I guess I should clarify. My intention is to bypass the conventional lenders, but have the family friend act as the bank. This is a property I plan to buy/hold. So I would like a 18mo-3yr term, then I'm thinking I would finance the balance (or even earn enough capital from a few flips) and pay her off?

Does this make sense or am I looking at this from "too new" or naive eyes?

Be careful in how you ask your family member for the money. Also, rather than getting a loan from them, which could make permanent financing harder down the line, and Thanksgiving dinners as well, consider bringing them on as an equity partner. You would be the person doing the work, but they would be the "money guy" behind the deal. Make sure that you have detailed business docs/agreements in place so that they know that this is a business deal and not a family deal. Then give them part of the deal for their money stake.

When you do this kind of deal, make sure that you are thinking about more than just the purchase price though. Think of the operating costs of the business, maintenance, utilities, reserves, etc that also need to be funded. Better to show a good deal and over raise the money than show a home run deal and have to go back or out and look for more money to keep the deal a float.

Good luck!