Obtaining Private Money From Actual Private Lenders?!?!

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Obtaining Private Money From Actual Private Lenders?!?!

Camille Johnson
Flipper/Rehabber · Lindenhurst, IL · Member since 2019 · 21 posts · 6 votes

I am a bit frustrated and hope this will be received well. This also may be somewhat lengthy as I just need to vent some.

I have a 15 yr background in account management/outside sales. My husband (a Chiropractor) and I started a renovation company in 2017 seeing an opportunity for us to start a business without much capital. With my sales/marketing background and his ability to run a team successfully we soon became busy. And good :)

After about a year or so we saw the opportunity to take our crews (we don't subcontract) and purchase distressed properties directly from homeowners not on the MLS. We use cash from individuals to purchase and offer double digit returns passively to our private lenders. We use a dedicated real estate attorney and all funds are kept in escrow for the duration of the job.

Again, we got busy! We started to get many houses in our pipeline and because we literally do this every single day - we are able to accurately determine renovating costs and have software to determine comps and profits to the penny. You would think this would be a no brainer for a PML to invest in. But it’s not the case! I’m so frustrated and don’t know where to turn. I do not want hard money loans and if I post for guidance that’s all that comes back.

Is there fear associated with private lending? We have a lock down/solid system in place with a renovation company in house.

How can we get the word out successfully so we can get more private lenders? Any tips or suggestions welcome.

Thanks.

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Jeff S.
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
7y

I can only imagine the number of anonymous solicitations you’ve received by now @Camille Johnson, from strangers happy to separate you from your money. Prepare to get your lunch eaten seeking money online like this.

BP has many very astute and honorable investors who are happy to share their knowledge -- all free of charge. Unfortunately, it also attracts its share of sophisticated scammers with fake websites, spoofed email addresses, and professional sounding names. There are the obvious telltale signs of a scam that have been written here ad nauseam: upfront money, Western Union, bad grammar, 6% interest, inappropriate license, private insurance, and on and on.

Similarly, Connected Investors, LinkedIn, Craigslist, Facebook, and others are cesspools of scammers. Do you know how to tell the difference between fake and legit?

You are flipping houses, Camille, not borrowing against large commercial properties, which could require dealing with a large out of town lender (and an airplane ticket I'll add). Don’t let your frustration suck you in.

Similarly, you don’t borrow money like this anonymously. Non-conventional money is best borrowed thru relationships. (And to respond to a comment you made in another post, it’s not “all about the deal,” it’s about the relationship. Deals come and go. The loan is made to you.). There are a ton of legitimate lenders out there and he safest way to develop a relationship is face-to-face. Local real estate clubs are the easiest way to find the greatest concentration of serious lenders.

This is a list of some real estate clubs near Chicago and Milwaukee from Meetup.com. With the amount of money floating around now, it would be hard to toss a rock into any of these and not hit a legitimate lender with whom you can have a real conversation. Lenders are climbing over each other now for experienced borrowers and you seem to fit the bill perfectly. Take a few to lunch. Visit a few of your properties. Bring a list of informed questions to ask and get to know one another.

You will lose many deals, but hold your lenders closely.  They will do the same.

Good luck, Camille.

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  • Sean Senatore
    Lender · Staten Island, NY · Member since 2017 · 30 posts · 12 votes
    7y

    @Daniel Dietz this is extremely smart and well thought out. Excellent advice. Going commercial aka 5+ units is the way to go and scale quickly imo. Camille’s model is different in the sense that it’s single to 2 family homes only (so it sounds)

    Private money is right under our nose, it’s just a matter of asking great questions, going with the flow, while not sounding desperate. And sometimes you’re going to need 3 PML on a deal. If it’s maybe a 25 unit going for 1.9m. $627,000 you’ll need for dp, closing, Renos, and $27k in contingency. Haha.

    I think MF repositioning is going to expand and grow as the market flattens out or declines from a home building prospective (US housing starts).

    That is what I’m into.

    Good luck Camille on finding that money. I wish I had some for you.

    -Sean

    0Reply
  • Camille Johnson
    OP
    Flipper/Rehabber · Lindenhurst, IL · Member since 2019 · 21 posts · 6 votes
    7y

    @Daniel Dietz What strategic advice! And truly that’s what we are all about. All are excellent ideas and my number one take away from this thread has been to get out and network.

    We put together the processes that we felt were lacking.

    Starting today I am putting together a mailing list and getting laser focused. Thanks again for your insight. Very much valued.

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Find out who is doing the underwriting and where the funds are coming from.  If you are sourcing from reputable companies or experienced individuals in your local market that are back with private funds, then something else is missing on the numbers here.  If the lender is underwriting and doesn't need an appraisal and doesn't like your deal, you could be too high on price or construction.  

    0Reply
  • Camille Johnson
    OP
    Flipper/Rehabber · Lindenhurst, IL · Member since 2019 · 21 posts · 6 votes
    7y

    @Sean Senatore I agree that the market is changing and I have a couple strategies myself ;)

    My background and strength is in sales and relationship building. Right now I have a marketing strategy in place where SF properties are coming to us and it’s not a competitive bidding war in that I’m up against multiple investors offering cash.

    After I educate them on the value of getting a cash offer and not making the repairs/holding costs, etc. The odds have been in my favor and the margins are great. I keep things very clear/honest that we are running a business and need to make money and outline all of the expenses. People also really love the idea of working with a family type team and not a national “I-buy” deal.

    I just need cash to move on these deals to the point where I've stopped marketing for deals until I sort this out. I am SO sick of being duped into what I think may be a prospective lender and spend an hour or more on the phone with essentially a bank HML. And then they won't let you get off the phone and keep calling.

    We are capable of running three crews/jobs at once so you can see that I can keep lenders happy and busy. Because of this, we need to be working with lenders that can fund a project, when completed we can have another waiting to go that they can push their money (and growth) into and so on and so forth.

    I am all about MF too and hope to be in that arena with you at some point too. :)

    Can’t tell you and everyone on this thread how much the support means! I am hopeful and that feels good.

    0Reply
  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    7y

    @Camille Johnson I have raised almost a million dollars in private money loans over the past year-and-a-half among 40 or more different private money lenders.

    The paradox was when I asked for money I would get a polite “no” from the people I asked. Then when I stopped asking for money and started sharing with people what I do, and they saw the success I was having, many people started to ask me if they could lend to me to learn about how I was investing in real estate. Now I regularly get a few requests a week by investors asking if they can partner up with us on a deal in order to learn.

    This is how I did it.  I would post in the forums about a deal I am doing (here's one that I posted yesterday).  In the post I write about the numbers and walk through the process for that specific property.  

    Newer investors might read the post and then reach out to me. So I would set up a lunch to talk about real estate.  At lunch I would share with them about the different properties that we are currently doing and they would want to know more and see if there was any way that they could get involved. I would then let them know that they could be a private money lender on the property and fund a portion of the rehab and I would walk them through all of the steps of the process so that they could have that learning experience.  I also do what @Mark Waldrip suggested by giving them a promissory note and a deed of trust on the property.  So these private money lenders earn 8% - 10% on their money while it is lent on the deal and they also get to have a learning experience.  I put them on my WhatsApp group where we show them videos of the properties and their progress, along with different issues that come up and how we analyzed the property, etc.  I share with them my contacts that I use for every part of the process so that they can take what they learn and the system that we have built and start to do it on their own.  They can come to our monthly meetup groups or come to our investor lunches if they are local.

    Even from making this post, I may have 1 or 2 people reach out to me saying they are interested in learning more about how to partner with me on deals.  Most of them are just curious, but those who really want to learn are happy to lend to us to get the learning experience and earn interest while doing it.

    So that is how I have attracted private money lenders.

    480-206-1209Podcast Guest on Show #287
    3Reply
  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    7y

    @Sean Senatore, I agree that Private Money is EVERY where. One of the people that is interested, but I have not done a deal with yet, actually said to me "How about I write you a check for 100K right now and let me know when you find a deal" (he knew we would have to set up LLC etc....) I told him to just hang on and I'll see what I can find :-) Granted, this is probably less than 5% of his investment funds to keep it in perspective.

    One other tip that I forgot to mention above is what Brandon Turner said on a Podcast............ When your mindset shift from THEM doing YOU a 'favor' to think of it as YOU are ALSO doing them a favor by giving them a great opportunity then it all changes..... Kind of changes the mindset from 'asking for money' to ' I will share MY deal with you'!

    [email protected]608-524-4899
    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    A past client approached me to fund her money for the flip. She will pay me ~9% interest and have my name on the title in 2nd place. 1st place is the lender, she being in 3rd place. I trust her and have her credit and her track record.  As an investor I can only work as partners. If she wants to keep the profit I am the banker sorry.  I can prepare drawing and put my PE seal on the drawing. The sf calculated will be the default size recorded sf by the city. If wanting to seek 9% return I can do it solo outside of home flipping. I get endless offers by reputable wholesellers so there is no problem to find these deals.

    Most flippers get caught by the market slowing down. Here in West Coast home prices have stalled over a year. Very hard to envision a hefty margin with an impending recession due in 2020. She is trying to get back to high tech as an Ivy league mba. She is not experiencing high ROI during 2019 as before. Investors are more cautious and there are safer places to park one's cash.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Camille Johnson

    I can’t disagree with any of the advice given here, but I have a different take.

    As a point of reference, in the last 18 years I have raised over $200 million in private money.

    What you are experiencing is what every business trying to grow at a rapid rate experiences - lack of access to capital.

    Some high tech companies “solve” this problem by seeking venture capital. Companies in the non high tech sector will seek private equity. Companies that are stable and have assets can obtain bank, or bank like financing.

    The reason that house flippers are able to secure financing from either private money lenders or hard money lenders is that they are able to offer real property as security for the loan. The reason these flipper have to pay double digit rates is that they are under capitalized, i.e., they don’t have enough owner capital invested.

    Let me explain. A real estate investment is typically purchased with as little as 20% down. This can sometimes be reduced to 5-10% if it’s residential property.

    You may assume, as a house flipper, that your offering real estate as collateral, and therefore should be able to obtain a 90% loan at bank rates, say 4-5%. But this is incorrect. If you were offering as security a tenanted property, then this would be correct. But offering a property that you are going to rehab and then place back on the market to sell, you are financing a BUSINESS, with a hard asset as collateral, not a real estate finance.

    So, as a business, you should have no more than 50% debt. If we give a little leeway for the quality of the asset provided as collateral, we may end up with a 40 % equity 60% debt split.

    As long as you run your operation as a mom and pop real estate operation, you’ll pay high interest and forever be scrambling to raise capital.

    If you formalize your operation and begin operating as a structured business entity, you may be able to enter an arena where you can obtain credit facilities, have capital available for your acquisitions, and have a chance to grow geometrically.

    This has a downside of course. Time, commitment, risk, all increase as well. Further, you’d need to greatly expand your capital base, thereby sacrificing equity. You’d need to provide formalized financial statements, and report on a quarterly basis. Your overhead would increase significantly.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    4Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @Camille Johnson:

    @Nathan Shotts Thanks for the feedback... we originally talked about offering 8-10 or up to 12% depending on the amount of money lent to us for a project.

    I have looked into hard money however for us, we have several properties that come into the pipeline and want on-going relationships.

    Something to consider again maybe...

     Camille, since you already have rehab experience, there are some HMLs that can lend money at 8%-9% interest. 

    And as someone else suggested, you can also look into a BLOC - Business Line of Credit. Depending on your personal credit score (has to be at least 720), annual income and current credit card balances vs. credit card limits, you can qualify for $40K, $80K or even more.

    Lastly, as others have mentioned - network. Tell everyone you know you're a real estate investor and ask others if they know anyone who wants to lend money collateralized by real estate.

    1Reply
  • Mike Burkett
    Lender · Colorado Springs, CO · Member since 2018 · 241 posts · 98 votes
    7y

    @Camille Johnson @Jay Hinrichs  Camille, I read through all these threads and I feel like I just did 80 laps on the hampster wheel.  Sounds like you have the operations side of the business down.  You are having difficulty with the capital side.  

    I know you buy and renovate, but I did not read what your exit strategy is.  Are you selling the houses or are you keeping all of them (some of them) as rentals? 

    In your original post, you stated that your investors are receiving double digit returns.  Are they providing 100% of the funds?  Are their funds structured as a loan (you give them the right to foreclose, fixed return) or equity (typically share in the profit).  Do you and your husband contribute cash to the deal? 

    I promise to share my thoughts, but I need to know your exit strategy.  

    0Reply
  • Account Closed
    Real Estate Broker · Boca Raton, FL · Member since 2017 · 11 posts · 4 votes
    7y
    @Camille Johnson, Several have suggested traditional hard money lenders. Have you explored this space and if so, what are you hearing?
    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 737 votes
    7y

    @Camille Johnson I agree with just about everything said before but never forget about branding as credibility. Setting up a professional structure helps as well. Having an LLC, EIN and bank account helps. Get a contractor account from Home Depot and Lowe's! Rehab funds!!! Some lenders may even count them towards reserves.

    0Reply
  • Kevin M Finley
    Developer · Kenosha, WI · Member since 2017 · 141 posts · 91 votes
    7y

    Hi Camille. I am in your region and have had quite a bit of success attracting and retaining private money on similar terms to what you are discussing. I just sent you a PM. 

    0Reply
  • Camille Johnson
    OP
    Flipper/Rehabber · Lindenhurst, IL · Member since 2019 · 21 posts · 6 votes
    7y

    Thanks so much for all of the latest responses... Seriously cannot thank you all enough for the encouragement and support. Like everyone else in this industry, my husband and I work so hard. To answer some of the questions I have read,

    1. We do have a state of IL LLC and our renovation company and real estate group are DBA's under it. LLC established in 2017 with business bank accounts, etc.

    2. We are offering double digit returns and have private lender packet that includes details of our business, attorney information, examples of deals (how they are presented, past budget examples, etc. 

    3. Exit Strategy - At the moment we want to flip all properties simply bc of the deals in the pipeline.  As stated, I have developed a somewhat unique strategy where I am not so much targeting the distressed homeowners other wholesalers are.  The properties are in great school districts/neighborhoods.  Very dated.  After rehabbing to 2019 standards profits are too nice to hold. 

    4. I am looking for all cash (potentially). Issue is that we simply have a very full pipeline of properties. Have not been on this thread the past couple days bc out vetting properties to purchase. If we did HML that would require a pretty good amount of them and total a good amount of cash.

    5. I have taken the suggestions on this wonderful board and got out and NETWORKED. Got over my issue of being weirded out by the topic of money.  I created a private money packet outlining what we bring to the table as I mentioned above.  Since doing this, we are now speaking with some serious lenders who can have a great opportunity and help us too! They seem to be impressed by our 2 companies and how we are working to create peace of mind.  All we want to to create long term partnerships with the systems we have in place. 

    Thanks so much again and please feel free to message me if I can be of any help.  :)



    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    7y

    @Camille Johnson I used to work with private money quite a bit when I got started - and it all came from my close sphere; people who knew and trusted me for a very long time, have seen me build and run a business for global company. But it took some time to develop the leads from when people expressed interest in what I did (you are not asking for money, you are offering on opportunity) to the point where we did the first deal.

    Real estate investing is sexy (Thanks HGTV!) and a lot of people are interested, but you have to give them the chance to observe what you do and get comfortable with it. That takes time. I used to bring people out to projects in different phases, so they could see start to finish. Seeing is believing.

    The other thing is that I did NOT offer double digit returns - people associale risk with double digit returns. Most individuals would rather give you 100k for 6% and know there is close to zero risk, than hoping for 12% and worry about their principal. Let that sink in for a moment. When you offer double digits, what they hear is risk. Low risk, and steady, repeat business is what people are looking for, usually they don't want their money back after the first deal.  

    0Reply
  • Anthony Dadlani
    Investor · New York City, NY · Member since 2013 · 1k+ posts · 269 votes
    7y

    @Camille Johnson

    I have heard this story at least a 100 times and you are not alone. Many flippers are frustrated with the lack of success in obtaining capital for their deals. The education gurus will tell you that “ Good deals always find money”. They are in the business of selling seminars and books, not funding deals. 

    Finding quality and reliable private investors takes years of networking and building credibility. But you have to start somewhere. Keep searching and do not get discouraged. The needle in a haystack is out there. When you do eventually find it, hold on and nurture that relationship as if your life depended on it........your business life does. 

    Best of luck in all your endeavors.  

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