To lend or not to lend that is the question

11 Replies

You DO NOT need a lenders license. There are many exceptions to needing a license.

I would just be very careful about who you lend money to. Make sure that you lend to people that you know are in the business and have a pretty good track record. I would get to know them before any lending happens. Make sure all transactions go through a title company and you have a deed of trust or mortgage(depending on your state) recorded with the county.

C’mon you guys. Really?

Some states require a license and some don’t, so you MIGHT need a license, @Alisha Davis . You didn’t say which state you are moving to so no one can give you a precise answer on this. For example, to call yourself a lender in California, you must hold either a finance lender license or RE broker license. Some states require nothing. Others, like Nevada, require everything as well as your first-born. This is a question easily answered by a local lending attorney, as are topics like usury, paperwork, and the lending process in your state.

Less easy is developing processes to find safe borrowers, understanding how to evaluate a property and the associated numbers, and creating lending criteria that keeps you safe while providing a competitive advantage. All of this is simpler with some prior real estate experience. If not, buying local loans from a local broker could be safer, as you learn.

Much of this has been written here if you do a search. We’ve been doing what you want to do successfully for some years now. From getting started to closing out a loan, I posted our process in detail here, which might help you: Becoming a Private Lender

You’ll read that our basic process is to only loan to those we’ve met face-to-face, to visit every property, and to never loan far from home. Also, 1st position only.

Best of luck to you, Alisha.

@Alisha Davis - I am actually passionate about educating on private lending. It is an excellent opportunity to earn money passively! As long as you vet the deal you can be reinvesting your money again quickly in deal after deal.

My husband and I have a company in the north suburbs of Chicago and we have an in-house renovation company along with our real estate investing group. We buy properties directly from distressed homeowners and pay cash. We get the cash from private lenders lenders and pay them 12-14% interest.

We have software that shows all renovations needed and profits to our investors before it is purchased. There are so many safeguards in place to protect our lenders. Like working with a dedicated real estate attorney and keeping all funds in escrow. I’m telling you this only to try and reduce your fears. There are people who know what they are doing all over the country flipping houses and need cash.

You absolutely don’t need a private lending license either. Hope that helps! :)

@Jeff S. Thanks I will dig into it. BTW I'm moving to NC. I want to invest in tax deeds as well but that takes 6 to 8 months from what an attorney told me. So in the mean time I want to dip my feet into lending to get something while I wait.

@Roman M. - I am such an advocate for private lending!

We started a renovation company in 2017 and then a real estate investment group in 2018. I have a background in sales/marketing so we have a honed marketing system to purchase properties directly from homeowners at a fraction of the cost. We use our crews to do the work and make great returns.

The problem has always been finding cash! We offer our private money lenders 12-14%, keep funds in escrow and have a solid track record of success.

There’s no other place an individual can earn passively that kind of money so fast (and my company certainly isn’t the only real estate investing group around).

Our company is in Chicagoland and have had to use private lenders from across the country because there it’s hard to get the word out. Definitely become a lender. Just vet the deal. It’s all about the deal.

Originally posted by @Alisha Davis :

I'm selling my house and moving to another state. I'm considering becoming a private lender with some of the proceeds. Is there anything I need to be aware of?

I'm only going to address lending for flips:

  1. Find a Real Estate attorney that has the ability to write up your lending documents along with holding & releasing funds in escrow.  You could also use a Title Company to hold funds in escrow.  The attorney and/or Title company will only release $ once criteria you've established has been met
  2. Find a company that specializes in as-is and After Repair Value (ARV) appraisals. You'll need to establish your own rules for what % of ARV you'll lend.
  3. Find a company that specializes in renovation inspections.  The inspector, working with the attorney will determine what should be released in each draw
  4. Secure your loan with the first position lien
  5. Get smart on private lending rules/regulations for the locations you'll be lending $
Originally posted by @Alisha Davis :

I'm selling my house and moving to another state. I'm considering becoming a private lender with some of the proceeds. Is there anything I need to be aware of?

Lots to be aware of.

First you have to know if the project you are lending on is wise or foolish or you might end up with a headache property if you have to foreclose. Don't lend more than 70% LTV when you are first starting out until you learn how things work. Learn how to properly guess what a house will sell for after remodel. Allows walk the property before you commit to the loan. If there are red flags don't lend until they are dealt with.

Most rehabs average about 6 months. Learn how much money is needed realistically to do rehabs. Get proof the borrower has the money in the bank to complete the project and have a reserve. Understand your tax liabilities.

Find a good real estate attorney to work with. Do every loan with a title report and escrow. Make sure your contract allows you to foreclose if the borrower fails to pay. Know the foreclosure laws and how long it takes to go through the foreclosure process. In some states it can take a year (of no payments) before foreclosure is completed. Some states allow judgments if the house sells at auction with a deficiency and some states you simply lose your money with no way to collect. If you win a deficiency judgment the borrower can wipe it out with a bankruptcy.

There's not much to it really. ;-) (he says slyly)