Lending money to a Rehabber

[Mike Nelson]

Was wondering if anyone could provide a brief summary of what all is involved when lending to a rehabber. I found one that I am interested in lending money to for his projects but do not know what all is entailed as far as securing my loan against the property and general terms/conditions. Is this as easy as finding an attorney to draft some loan documents and lending the money, or is there all sorts of legal hoops I need to jump through to get started? Any article references would be great if anyone has any. Thanks.

Mike

[Jeff S.]

Originally posted by Mike Nelson:

Was wondering if anyone could provide a brief summary of what all is involved when lending to a rehabber.

.

I agree about finding a well recommended lawyer who specializes in lending. The law, the paperwork, and even title and escrow (if that’s how it’s done in FL), are the easy parts though. They tend to be fairly low risk, straightforward, and will generally take a minimal time to learn. More important in my view, is to make sure you know who you’re lending to.

Private lending is more about the quality and character of your borrower than the paperwork. Perfect documents and even a great deal won’t help you with someone who has limited experience or limited character. I can’t tell your plan, but I suggest you place getting to know your borrower a priority, and believe in his or her abilities before you agree to a loan. Then, work on the deal.

One rule of thumb is, “Don’t loan on what you won’t own.” You’ll have to learn to determine the value of the repaired property and the associated rehab costs if you don’t already know how to do this. If your borrower is skilled at finding great deals, worries about paying you back, and your loans are conservative enough, you’ll enjoy minimal risk and should never own the property.

Originally posted by Mike Nelson:

Anyone care to share typical interest rates and points associated with private lending on rehabs?

Prevailing interest rates, points, and terms are local, Mike. You'll have to ask around your local lender and rehabber community for these.

Good luck.

Jeff