Lending private money, getting things started

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Lending private money, getting things started

Evan Loader
Rental Property Investor · Ann Arbor, MI · Member since 2019 · 71 posts · 67 votes

I'm a 35 year old professional that travels a lot for work, but still actively wants to invest in RE. I am currently working overseas in Bahrain as a civilian defense contractor and won't be back in the US until at least the end of the year, if not much later. This makes investing directly in RE difficult, clearly not impossible but harder to get things rolling. I have participated in a syndication as a limited partner, but want to branch out into private lending, loans of one year or less. 

I read 'The Bankers Code' by George Antone and it drew me to private lending. For my situation being away from home so often(I'm a Michigan resident), this would still allow me to participate in real estate but be diversified beyond a syndication. The more I have researched the area, the more comfortable I am to actually do it. I am not looking to loan out a ton quite yet, but $30-$50k seems reasonable. Is that enough to attain a good return? I would want my money to be secured by a promissory note and mortgage on the property in question, and thanks to the advice from some on here, if the property in question isn't enough to cover it, I would need to attach a lien to other property to ensure I can get my money back. 

What do you all recommend as to additional education/reading or areas to explore getting things moving? Thanks. 

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Roman M.
Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
7y

Evan,

I read the book and attended the seminar. 

Your first priority should  be compliance with federal and state lending regulations. 

So read up on Dodd Frank, usury law in each state you planning to lend and that state's lending license requirements. This is something that is not covered enough and can cost a lot of money if certain laws are broken. Now if you just lending to friends and family then it's less complicated.

After looking more into bankers code, private  lending and doing a lot of research, I came to realize that it is a job and not passive in any way.

Don't get me wrong, I would love to do private lending but regulations makes it very difficult and time consuming. Also you have to constantly look for customers and you competing with highly competitive hard money lenders.

Lendng under $50k is great idea because most HML don't do loans less then 100k.

So I found that traditional real estate is much more passive and easier but I still be interested in private lending on a deal to deal basis I such deal falls into my inbox and it passes all check and balances. 

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  • Roman M.
    Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
    7y

    Evan,

    I read the book and attended the seminar. 

    Your first priority should  be compliance with federal and state lending regulations. 

    So read up on Dodd Frank, usury law in each state you planning to lend and that state's lending license requirements. This is something that is not covered enough and can cost a lot of money if certain laws are broken. Now if you just lending to friends and family then it's less complicated.

    After looking more into bankers code, private  lending and doing a lot of research, I came to realize that it is a job and not passive in any way.

    Don't get me wrong, I would love to do private lending but regulations makes it very difficult and time consuming. Also you have to constantly look for customers and you competing with highly competitive hard money lenders.

    Lendng under $50k is great idea because most HML don't do loans less then 100k.

    So I found that traditional real estate is much more passive and easier but I still be interested in private lending on a deal to deal basis I such deal falls into my inbox and it passes all check and balances. 

    1Reply
  • Evan Loader
    OP
    Rental Property Investor · Ann Arbor, MI · Member since 2019 · 71 posts · 67 votes
    7y
    Originally posted by @Roman M.:

    Evan,

    I read the book and attended the seminar. 

    Your first priority should  be compliance with federal and state lending regulations. 

    So read up on Dodd Frank, usury law in each state you planning to lend and that state's lending license requirements. This is something that is not covered enough and can cost a lot of money if certain laws are broken. Now if you just lending to friends and family then it's less complicated.

    After looking more into bankers code, private  lending and doing a lot of research, I came to realize that it is a job and not passive in any way.

    Don't get me wrong, I would love to do private lending but regulations makes it very difficult and time consuming. Also you have to constantly look for customers and you competing with highly competitive hard money lenders.

    Lendng under $50k is great idea because most HML don't do loans less then 100k.

    So I found that traditional real estate is much more passive and easier but I still be interested in private lending on a deal to deal basis I such deal falls into my inbox and it passes all check and balances. 

    I was under the impression that if I am lending to investors vs. owner-occ that the licensing requirements are far less stringent/regulated. Was I misinformed? Everything I have read has warned about licensing/regulatory issues only if I am lending to owner-occupied. 

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  • Roman M.
    Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
    7y

    I am not sure who informed you. You can lend but you got to be aware of the regulations.

    Each State is different and there is a lot of details. For example your state Michigan
    requires compliance. Florida requires licensing if you are to put yourself out as a private lender. Each state has different usury laws.

    Then you have Federal regs. Read Dodd Frank. I can't interpret this for you as I am not an attorney. 

    There are ways around it but you have to know regulations before you can insure you are in compliance.

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  • David RodriguezPro Member
    Nashville, TN · Member since 2019 · 13 posts · 4 votes
    7y

    I have also been looking at private lending. We have a capital LLC just for the purpose of lending. I do need to learn more about regulations in my TN. Thanks for your words of advice Roman! I will pick more books and read them.

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  • Marcia Gilad
    Lender · Ann Arbor, MI · Member since 2015 · 45 posts · 10 votes
    7y

    Evan,

    My company is a private lender in Michigan. I agree with earlier comments about reading up on regulations, usury limits, etc. The best advice I can give you is to find a reliable attorney in the state where you plan to lend. They should be familiar with both real estate as well as writing notes/mortgages. In addition to the note and mortgage, consider getting a personal guaranty from the borrower as well. There are a few other docs you'll want to have your borrowers sign (stating that the property will be non-owner occupied, etc.). I'm not an attorney, so you should find one that can assist you in making sure you're completely covered in the even that you need to foreclose. Having said all of that, lending can be a great way to "invest" from afar, but there's still a lot of work. You'll want to review the borrower's deal and the property with the same type of diligence you'd use if you were doing the deal yourself...because, after all, since it's your money, you basically are doing it yourself. You're just not having to deal with contractors, etc.

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  • Ben F.
    Investor · New Castle, IN · Member since 2017 · 33 posts · 7 votes
    6y

    Hello, does anyone know of the regulations in Indiana for private lending

    0Reply
  • Cindy YoungPro Member
    Member since 2024 · 12 posts · 7 votes
    2y

    If you're looking for FL attorneys that specialize in private money lending, I spoke with two this week - Jennie Farshchian at Farshchian Law and Michele Diglio-Benkiran at Legal Counsel PA. I highly recommend Jennie - she was knowledgeable, efficient, transparent, and accommodating. Hope this helps!

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