Is the true private lender a unicorn?

Question

Jay Hinrichs · Answer

Lee we see that in the last 10 years were HML started to market themselves as private lenders.

is just a marketing play.

the idea is the public for WHATEVER reason thinks a private lender is going to be far cheaper than a HML.

when in fact this simply is not the case

or the public thinks a private lender won't be a strict in under writing as HML

but basically ANY lender that is in the business to make loans at above bank rates is a HML.

a private lender is your doctor your friend someone known to you and who DOES NOT ADVERTISE at all ever.

maybe the most they do is find someone to do business with at a REIA.  they have usually limited funds.. although I know some private guys with large dollars 5 to 10 million.. but those are the unicorns.

Christopher Blanco · Answer

I would argue that Hard Money Lending and Private Lending are two sides of the same coin. I work with a "Private Lender", we are not a bank, we are not FDIC insured, all we do is lend on Real Estate. We are lending from a private capital fund. However because we lend ONLY on hard assets we are considered a Hard Money Lender as well. To call someone a "true" private lender is ambiguous at best.

Brad Smith · Answer

Hi Lee--

I understand the question and my question for you would be--Why does it matter?   The ultimate terms that are offered are the crucible in determining if it's a good deal or not.  Take my home market of Baltimore/DC Metro for example.  I've got multiple sources of funding Fix & Flip deals: Myself, mortgage pools, brokering (Institutional non-bank) and private (individual or individuals).  Guess who has the best terms 90% of the time?  That's right---Institutional (brokered).  It's simple risk/reward economies of scale that the big guys will be willing to gamble their 100K at lower rates/points.  This is even more profoundly true with buy/hold long-term rates, which have been driven down to the low 5's and up to 80% LTV.

What you won't get institutionally and the point I think you're getting at, is the ability to "sell" yourself or project to an individual or individuals who decide they like you and want to fund your entire deal (or close to it) for some shared debt/equity split at the end.  If that's what you really want, you'll need to attend every REIA meeting within driving distance and broadcast that to the group.

Ola Dantis · Answer

@Lee Lockhart Hey Lee, I think it is challenging to hard to find true private lenders, someone or group with very deep pockets and who can also really understand the business.

That said, if you are looking to fund your deals, I think HMLs should suffice especially if you are just starting out. Taking peoples' live savings comes with a certain level of fiscal responsibility and stewardship. Same goes with HML loans; however, some HMLs can tell you pretty quickly if a deal isn't the best because they have done hundred of deals.

Guys with really deep pockets who lend and don't publicly market their products sit on a very thin fence of Hard Money Lending and Private Lending.

Hope this helps, Lee. Goodluck. Thanks! - Ola

Account Closed · Answer

I'm not soliciting, just answering a question.  I run a small, private lending operation in Dallas, putting out hard money loans for fix and flip and new residential construction.  We use our own money, but our terms are certainly in line with other hard money lenders.  Someone earlier stated it pretty clearly.  In many cases, it is different sides of the same coin.

Nghi Le · Answer

Doesn't really matter what they're called... just worry about the terms.  I've had private lenders charge 6%, and I've had them charge 30%.  I've paid both, one obviously in a very desperate situation.

I'm guessing you want more of the 6%.  I don't recommend finding them here on BP or at real estate meetups.  Thes people tend to be savvier investors and they know they can charge more.  The average one in my area charges 12%.

You want people who are busy professionals and have a stockpile of money sitting somewhere earning horrible interest.  Approach them and offer to help them a way to get more out of their money.  A track record would really help though.

Mike D'Arrigo · Answer

@Lee Lockhart there's lots of individuals that are very willing to lend out of their self directed IRA's or other asset accounts. They operate on a much smaller scale than the professional HML and typically fund 1 to 2 deals at a time.

Mike Dymski · Answer

Private lenders and limited partners are business as usual for many investors...no unicorns.  All syndications are purchased using OPM.  I read many posts from members who are using money from friends, family, and acquaintances to purchase properties.  They develop a track record and consistently network for money.  Most of this networking does not pan out but it's a numbers game and done consistently over time, they find money.  In today's market, there is a lot more money than there are good deals.  The unicorn is deal flow, not the money.

Is the true private lender a unicorn?

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