How did you find your private money lenders.

Question

I got comfortable over the past few years with two private lenders that I was working with.  At basically the same time the one turned 70 years old and needs to start taking mandatory withdraws from his SD-IRA and he is fully allocated so he doesn't see himself making many more loans in the future.  The other passed away and even though he tough his children and wife about the benefits of investing in private lending, they would rather have cash right now so they are not really interested in continuing in the future.

But I have a few good deals in the pipeline and after working with private money investors like these two, it is very difficult going back to traditional Hard money brokers.

I should have been building similar relationships a long time ago but I didn't...easy to get comfortable.

Anyhow, anyone care to share how they found their current private money investors?  Or any other ideas?

Will Barnard · Answer

I can also state that $50k can be placed into the CA market and not just on low end/low price deals either. For instance, $50k could be combined with another investor's funds to work a fractionalized note for the total, or you could place it in second position for rehab funding, or many other options.

To answer the last question, starting out as a hard money lender is different than starting out as a private lender. If you go the HML route, you wil need to have a brokers license and you will need to have capital in an amount over $1M for CA if you even want to be taken seriously and actually perform for clients. For other states, I could see you starting with less, however, many large HML's raise private capital from private investors at lower rates, then lend that money out at higher rates keeping the spread (arbitrage) as well as charge points and fees.

Gene Hacker · Answer

There are a lot of areas in California where you could do loans with less than 50k.  I invest in eastern Kern county (about 45 minutes east of Bakersfield in the quiet mountain communities of Kernville/Lake Isabella) and there are fixer houses selling in the $40k to $100k and manufactured homes on land starting at $25k range (which rent for $700) so it is possible to find small numbers private money investment opportunities in California.  Of course there is the higher end stuff too.  I know a private investor that works coastal Orange County and his "comfort range" is $350k to $600k.  The point is...California is a diverse state.

Joe Delia · Answer

That would vary on the market.  OH, with 50K you could start doing some loans.  In CA, you could loan on well... nothing with 50K.

Gene Hacker · Answer

Hard Money Lenders are often brokers.  They find lenders and borrowers and take a fee and spread as profit.  It is critical for a hard money lender to be pretty well capitalized because they aren't going to have much of a reputation if they aren't always capable of making loans.  I think one of the main reason solid deals are denied financing from HMLs is that the HMLs don't have the funds.

Many HMLs aren't interested in smaller deals ($50k seems to be a pretty common figure figure for the low end of the range).

In terms of private lending, the investor/lender can likely keep even relatively small amounts working for them.  In my area I have seen private loans ranging from $10k to a few hundred thousand.

Eric C. · Answer

What's the typical profile for someone who wants to become a HML?  How much cash should typically be available to lend?

Gene Hacker · Answer

Karen,

I mostly deal with single family homes, either fix and hold or fix and flip.  I have also done deals with commercial and manufactured homes.  I have some leads on SFHs right now.  My area of eastern Kern county is pretty inexpensive, the houses I am looking at are under 100k.  I can make the numbers work with hard money but I would like to get cheaper money (even if just a little cheaper) if possible.  My short term goal is get a longer term loan on one of several rental I own free and clear.  I am past the point of getting bank loans so the ideal situation would be to find a private lender that wants a longer term loan (4 to 6 years).  That would free up some of my capital so I could make all cash offers with zero contingencies.

Karen Margrave · Answer

Gene Hacker We actually are in a similar situation to you. We had some private money lenders we worked with for years on our spec construction projects in northern California They were retired contractors themselves. Both of them were elderly gentlemen. One passed away, and the other didn't want to do loans on his own. In addition, we relocated to southern California which has a totally (better) different market,and need to find new lenders.

We've just completed our first spec house in Lake Forest, CA, using the one lender we had left from northern California, and will be looking for new ones for some commercial projects we hope to do.

What types of projects do you do? Fix and flip? or ? Price ranges?

Gene Hacker · Answer

The family member was lending at 8% to 10% and no points.  The other private investor I had (the one that passed away) would lend at 10% to 12% depending on the property...again no points.  These are loans only...not partners or equity share deals (did I imply otherwise in my original post?)  I have talked to dozens of HMLs...none come anywhere close to those terms.  If I was closer to LA/Riverside I would be using TNG but they don't do loans in my area (to far for them).

Corey Dutton · Answer

Many times, particularly in CA, your hard money brokers are going to know about all of the lending sources, new and old. Some brokers are "jokers," but if you find a good one who has endless sources, you'll always have money for your deals in plenty, especially in the CA market. Using your money and your family's money is the most expensive money. How much of your profit will a family member or partner take. Compare this with the cost of hard money and there's just NO comparison. This comes from a real estate investor in CA who has done over 400 flips in Riverside area, Bill Shipp.