How can you tell a Private money lender is legitimate?

Question

Hi. I saw an add in Craigslist for a private money lender for RE investors. It seems too goo to be true (4% interest with short to long terms). How can I weed out the scammers? What questions should I be asking to help protect myself? Thanks for your help.

Christine

George Despotopoulos · Answer

@Tom S. you are fast and have once again beat me to it.

@Christine Walsh and hopefully others reading this, upfront fees is a huge flag.

Tom you're right, it's great to meet in person, but online-based lenders like us exist as well! I would say looking at the overall picture is prudent. Is there a website, a number to reach them, are they active in communities like BiggerPockets, would they be willing to do a web-video conference, etc., and other such factors should be considered.

I would say new investors, who qualify for traditional financing, should definitely go the bank route. For now, the rates are low. While their process is a bit grueling, it's also a learning experience.

Depending on the state the property is in I would do some research to see what sort of license is required of the lender, also read up on up to what they can, by law, charge you on late fees or upon default.

Another thing, I would ask for a referral, either another borrower or a trusted and reputable company in the industry. Ask them what vendors they use or who their local counsel in the area of the property is and if you could email/speak with them (sometimes this isn't do-able, but worth a shot), anything to add legitimacy.

Tom S. · Answer

@Christine Walsh Upfront fees is the #1 red flag, especially wiring / Western Union those fees. Meet people in person ideally, usually through a REIA meeting (check Meetup.com) for your area.

Yes, 4% interest is way too low for private funds.

Better yet, just stick to banks for funding. You'll get the lowest rate and longest term.

Good luck!

- Tom

How can you tell a Private money lender is legitimate?

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