How to protect myself

8 Replies

Hey BP,

I am doing deal analysis on properties I have found in my area. I picked out some vacant properties and I'm analyzing the deals to see what would be the best exit strategy and how to finance them. I have access to MLS and can run comps and have a good analyzer to run the numbers. I have sent letters to the owners asking to purchase the property. I have not received any responses so far and I am digging for more contact info about the owners so that I can reach out to them.

I have been searching for financing options and found a few hard money lenders that will work with me, but I don't meet the requirements yet (need to set up my LLC - easy enough, and have to get the down payment). I have recently been contacted by a private money lender that wants to loan me the money on flip projects. I am not entirely sure about this and want to know what you guys think I should do to make sure that I am protected and at the same time that I don't mess up a good opportunity. I have been honest with him about where I am in the process and he wants to send me a loan application to fill out and get me approved for the funding. This is my first time dealing with a private lender and a bit nervous and want advice.

Is there something I should make sure to do to check this guy out? Is there a way to make sure that I'm not giving my information to someone trying to scam me? How should I go about this to make it work?

I really appreciate all the time to help me learn how to figure this out.

Where did you meet this HML?? Online-not good. As a referral from a friend who has used him in the past-good.

But really, if you are in letter writing phase right now, you dont need to get pre-approved yet. You are going to end up talking to a bunch of owners that want crazy amount for their homes. When you find the motivated ones who are very flexible and ready to deal, that is when you know you have a deal. It may take looking at 10, 20 or maybe 30 homes before you find your deal. Once you have a contract with a 30-45 day closing, then you can make a few phone calls to the lenders that your friends have used in the past. Dont go with someone you dont know at all.

I am only going to give my SS# and bank info to someone that I know is really a lender and has closed loans for friends.

@Ricky Brown one easy tip to start a scam is if they ask for an upfront fees (or anything more than a nominal $200-$400 appraisal fee).

I did meet the person online. Through LinkedIn. He seems to have a business that lends money to people. I figured that would make him a hard money lender instead of a private lender. I was feeling like it would not be a good idea to give any info. He sent me an application, but was not asking about much personal info, except for job income, address, and how much the loan would be for. He didn't ask for any up front fees, just that I would have to purchase loan insurance. I will look into it more and keep focusing on finding the deal before trying to secure the financing. Thanks

The guy MAY be legit, but who knows. I like to be a little more sure. 

Become a member of a Real Estate Investment Association or REIA in Lexington or Louisville. There will be plenty of HMLs who are sponsors. Ask around and find a few people who have used them. You will be 100% sure that they are legit.

Good luck!!

@Ricky Brown  "He didn't ask for any up front fees, just that I would have to purchase loan insurance." - right there is the red flag.  Don't do it!

- Tom

@Tom S. Why is that? Is it the loan insurance that is the issue, or is that there are no up front fees at all? I have spoken with some legit HML (like Lima One Captial and Realty Shares) and I see what kind of criteria and terms they offer. Is that something that I should expect from all lenders? Meaning the points/fees for loan origination? Is the loan insurance something that is not normal?

Also, what's the differences between the private and hard money lenders? I know the private lenders are usually individuals with capital to lend, so I figure they set their own terms and specifics. Should they have some kind of set things that most look for when lending money to investors? 

@Ricky Brown  I've never heard of a fee for "loan insurance".  Feel free to call your insurance agent and inquire about it to do some research.  If the lender is demanding any fees, insist they're paid out of the proceeds at closing, nothing should ever be wired up front.  Usually an appraisal is the only thing that's paid for up front, and that check is cut to the appraiser directly.  $300 or $400 for that.

Proceed with caution.

- Tom

I did more digging and could not  find business or much more about it. I told him I wanted to learn more  about his company and he stopped speaking to me. then I got another  offer from a different person. fake profile and no registered entity. not sure why they are targeting me, but I appreciate the word of caution. 

I'm going to the REIA meeting in Lexington in a few weeks and will find a local investor and learn who to work with.

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