WHY I LOVE PRIVATE MONEY LENDERS

Private Lending & Conventional Mortgage Advice
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WHY I LOVE PRIVATE MONEY LENDERS

Don ScottPro Member
Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes

I started investing in real estate over 8 years ago and I have done all kinds of deals.  

I started as a landlord and buying Rentals.  Then, I started wholesaling and flipping properties (currently doing about 50 transactions a year over the last couple of years).  

I have also Owner Financed a couple of properties, own some Multi-Family (currently have a deal under contract and looking to close 3-4 more before the end of 2020), and a co-owner in a Tiny Home Park.  There is more, but this post isn't about that LOL...

I didn't actually start using Private Money until only 3 years ago!  I had a very good friend, who flips over 50 houses a year, tell me about Private Money Lenders and I haven't looked back!

Now, I fund the majority of my real estate deals with Private Money.

I’ve borrowed & repaid millions of dollars from my investors.

Not all of my deals have gone as expected, but if you do enough deals then you understand that is a part of the game.

I’ve lost money on a few here and there and I'm sure it will happen again.

But here’s what I’m most proud about in my real estate career: MY LENDERS HAVE NEVER LOST A PENNY!

So even when I’ve taken hits on some of my deals, my lenders have always received 100% of their capital AND Interest that was promised to them.

*And I will note that I have a fairly conservative/cash-flow approach to real estate and always have at least 3 exit strategies on every deal, just in case…if you're considering becoming a private lender, I would strongly encourage you to get to know your borrowers AND their investment strategy [critical]

**I apologize for the long post, I just wanted to share how my Private Money Lenders changed my life as an investor.

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Lisa Eckman
Lender · Member since 2019 · 114 posts · 29 votes
6y

I'm looking at offering private money loans and wonder if you can provide some advice on what's really necessary for me, as the lender, to protect my interests. Everyone's trying to keep costs to a minimum, so a lot of the safeguards might go by the wayside:

 - Is it really necessary for me to have an attorney involved?  

- Is it really necessary to have a new title policy when you have one dated within the last 6-12 months (for example, when the owner purchased the property initially and is now rehabbing)?  Yes, I know that something could have changed during that time.  But you can say that about a property that has a title policy as of a week ago. I guess the difference is that the title policy would pay up if necessary were you to have a current policy?  

I would have a 1st lien recorded on a property that has 65% LTV. However, tax and mechanics liens take priority. So there are always risks. Just trying decide what is truly necessary.

Thanks for your advice!

Lisa

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  • Marco PadillaPro Member
    Investor · Philadelphia, PA · Member since 2017 · 104 posts · 50 votes
    6y

    @Don Scott Thanks Don very informative. I have a question though. In your market how is the competition? Is it crowded like here in the Northeast (Philadelphia PA) to be exact.

    [email protected]215-999-3005
    0Reply
  • Douglas J Andrews
    Member since 2018 · 6 posts · 0 votes
    6y

    @Don Scott ,

    Hello Don I am still pretty much a newbie in real estate. I own one duplex and have good tenants. I live in the other side. I’m looking to purchase a duplex that is about four houses down from me it just came up for sale and the owner is a realtor who bought it two years ago. I do not have the down payment for the initial 25% needed for the investment. I’d like to put an offer or two together requesting some sort of seller financing or trying to use Hardmoney. I’d love to hear your thoughts. Thanks so much!

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    6y

    @Marco Padilla

    Honestly, I feel like it in Houston, it is like any other major market with lots of “competition” but slightly more completions because not only do we have local investors, but we get a lot of long distance investors from more expensive markets investing in our market as well as a lot of institutional money.

    But here is the crazy thing... I feel like there isn’t competition other than with myself! There are so many opportunities for deals, it’s up to me to go find the deals I want to close on.

    1Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    6y

    @Douglas J Andrews

    If you ran your numbers and they look good to you run it by a couple of hard money lenders. Two of the things they will do is evaluate the deal and tell you how much cash out of pocket you will need to bring to close the deal, and they will prequalify you for your refinance out of the hard money loan into your long term financing prior to closing the deal.

    0Reply
  • Marco PadillaPro Member
    Investor · Philadelphia, PA · Member since 2017 · 104 posts · 50 votes
    6y

    Thanks for the input Don, I truly do appreciate it. My biggest concern is I found a few FSBO here in my market however so many wholesalers have already tainted the sellers and who knows what they've already been through. However they talk and act like as if they've been through a lot with other investors. Now they don't want to deal with any one who has HML on their paperwork. LOL

    [email protected]215-999-3005
    0Reply
  • Steve HiltabiddlePro Member
    Lender · Pennysylvania · Member since 2018 · 139 posts · 68 votes
    6y

    @Jeff S.  Love that response regarding the borrower being in default when signing the papers.  I know that is not the intent in any way but clearly you are lending like a bank does, as it should be.  When all goes well, who needs agreements, right?  It's when a deal go sideways is when agreements become 'dis-agreements'.  Don't give your borrower any slack when it comes to documenting your ability to hold you hostage from your investment.

    I only have the protection from what is in my documents. Everything else goes in favor of the borrower.  So yes, they should be thorough and drafted by an attorney who works with lenders and knows what they are doing.  There is no other way to do it.

    Cheers, 

    1Reply
  • David de Luna
    Rental Property Investor · NorCal · Member since 2018 · 399 posts · 222 votes
    6y

    I'm a little surprised lenders don't know how easy it is to get 15%-20% in the market on great mutual funds. I've been doing it for years. It's how I built the capital I'm now investing. I've been doing this for years. Some years 10%, most years closer to 20%. Because of that, I felt weird about offering 10% to private lenders when they started asking me to participate. I have a half a dozen private lenders now and everyone (except my siblings) get 20%-25% and are ecstatic. I also feel like they are earning more than they can get in the market. Some say I'm overpaying, but some lenders actually know better. My siblings, I already turned onto some great mutual funds paying far in excess of 10%, know better and won't budge if I can't at least match the investments they already are in. Anyway, only because I know what you can do in the market if you just do your homework, I don't offer anything less than 20%, which, by the way, is even less than what I pay to Lima One at 12%, and other HMLs, but without all the red tape and inspection fees, draw fees, massive points, etc. which drives up the total cost of financing well over 20%

    0Reply
  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

    @David de Luna would love to talk to you about you’re post. Just sent you a DM.

    0Reply
  • Joe White
    Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
    6y

    @Lisa Eckman Let me know if you are interested in investing in the Philadelphia market. I'm fairly involved here and I can connect you with established, experienced buyers.

    0Reply
  • Joe White
    Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
    6y

    I would check Usury Laws before taking some of the advise here. Some of what people are posting is illegal. I'm a RE Broker and own a Philadelphia Property Management Company and I not an attorney, accountant or otherwise; but I would be careful!

    0Reply
  • Lisa Eckman
    Lender · Member since 2019 · 114 posts · 29 votes
    6y

    @Joe White What has been suggested that is illegal?  I appreciate the advice and also that you're not an attorney.  Thanks!

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    6y

    @Lisa Eckman - great question... 🤔

    0Reply
  • Joe White
    Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
    6y
    You should investigate the term "usury" or speak to an attorney on it. Some of the advise here doesn't seem to be completely accurate. You can not charge exorbitant interest rates, as suggested. Its illegal.

    But again, I'm not an attorney, nor licensed to educate in these matters; but I do think you might want to poke around some.

    That's not to say, you can't profit considerably!

    Originally posted by @Lisa Eckman:

    @Joe White What has been suggested that is illegal?  I appreciate the advice and also that you're not an attorney.  Thanks!

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    6y

    @Joe White - I’m aware of usury laws as well... and what it sounds like you are suggesting, would mean all hard money lenders are illegal.

    I work with experienced attorneys, CPA’s, and lenders on every transaction; and lending money on real estate transactions at 7-15% is not illegal.

    Only having a degree in Accounting & Finance and not law, I always tell people to not just listen to my experiences but speak to a professional.

    0Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    6y

    @Joe White, please be careful making blanket statements about "exorbitant" rates being illegal. Your statement does more harm than good.

    Unfortunately, your statement is blatantly wrong. Especially when you start talking about hard money and commercial loans. Many states have no usury limits on commercial or hard money loans. The reason they don't is so that business owners can conduct business as they see fit. If a business owner agrees to a high interest rate loan, it's because it worked for them. Short of coercion, you know it's a good deal if both parties voluntarily do the deal.

    4Reply
  • Luisa Beltran
    Lender · Houston, TX · Member since 2020 · 3 posts · 1 vote
    6y

    I can relate to the start of this thread because it's very similar to the way we got started in private/hard money lending.

    2008 really killed any money we had in both 401ks and stocks....so we started by moving whatever was left into self-directed IRAs to be able to fund projects with our retirement money and taking control of things....and we never looked back and we continue doing it.  So no matter what happens, all of our investors get paid, and much better than banks too!  I just checked my bank statement and I am getting $0.19/month on ~$5k, it's ridiculous.  

    0Reply
  • Raj G.
    Investor · Jersey City, NJ · Member since 2015 · 304 posts · 48 votes
    6y

    One question, what happens when you reached maturity date and borrower still needs few more months?

    what are standard or common terms and condition for such situation...Thanks

    0Reply
  • Don ScottPro Member
    OP
    Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
    6y

    As soon as the the maturity date starts to approach (I would say within 60 days of the end of the term).  I would discuss options with the lender about either cashing them out by selling the property, refinancing them out with a bank or another private lender, or renewing the loan.

    0Reply
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