Avoid Scams? Private Money?

Private Lending & Conventional Mortgage Advice

Avoid Scams? Private Money?

N Providence, RI · Member since 2018 · 67 posts · 11 votes

Hey BP

Im always giving my email in Facebook groups and I come across plenty of "lenders" but sometimes something just feels off, like it could be a scam.

I emailed a Private money guy recently is offering 4% interest which sounds great but needs a $1500 origination fee.

Someone had told me there's a list or software out there to tell or identify whether the lender is legit or not.. so my loaded question is ...

1.) How can I tell if the Private money or even Hard money lender is legitimate?

2.) Is there always an Origination fee?

3.) Can someone please refer me to a PML???

_My experience level is 2 done flips.

_Used high interest hard money.

_woukd love to work with a Private Money Lender in Massachusetts or Rhode Island.

Please and thank you BP community.

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Fred Shatzoff

Lender · Member since 2019 · 604 posts · 160 votes

Nobody is giving 4% on hard money. More like 10% to 13% always points 3 to 4. Only fee prior to closing is appraisal paid to appraiser. Other fees at closing. If it sounds to good to be true it usually is.

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Fred Shatzoff
Lender · Member since 2019 · 604 posts · 160 votes
6y
Nobody is giving 4% on hard money. More like 10% to 13% always points 3 to 4. Only fee prior to closing is appraisal paid to appraiser. Other fees at closing. If it sounds to good to be true it usually is.
4 Reply
Anthony ThompsonPro Member
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
6y
@Steven DAmbra yes I can recommend some HMLs, and sent you a msg.

As @Fred Shatzoff said, if it sounds too good you should be skeptical. The only time I would expect 4% is if it's a close friend or family member who doesn't know much about real estate and how much they could be charging. In other words, it's a personal favor to you based on your existing relationship, rather than from someone who's savvy in real estate and loaning on the merits of the deal.

I don't know of any list or software to tell a good private/hard money lender from a bad, but in general feel free to ask for a track record, other borrowers who borrowed from them and were happy. They should have no problem giving that to you. If they do, then that tells you your answer.

There's not necessarily always an origination fee but with hard money there are, more often than not, points. Sometimes when you get to closing you find some of the points are actually an origination fee, with some going to the lender and some going to the broker. But in effect they're the same and yes it's common.

Generally the only way to avoid points or an origination fee is 1) going directly to the lender (no broker/intermediary involved), and 2) have an established relationship with the lender. #2 could mean either that it's a HML you've done several successful deals with, who cuts you a break and eliminates the points, or is a private lender who isn't real estate savvy and doesn't even realize points are common.

It's basically the same with lending as it is with buying houses: The more work you personally put in to make the deal happen, the better deal you'll get. If you rely on an intermediary such as a mortgage broker (or wholesaler, for flips) to put the deal together, it will be easier but you won't get as good a deal.

Some people have more money than time, and some people have more time than money. Sometimes it's better to just pay a little more and get a deal done now, and then worry about how to move up the value chain or cut out the intermediary on the next deal.
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Anthony ThompsonPro Member
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
6y
Thinking about this more, I think your 4% "private money guy" is probably just a mortgage broker for a traditional bank or credit union loan. That scenario, a 4% loan with an origination fee, sounds like a regular bank loan and a mortgage broker.
That may not be the end of the world but with regular bank rates, come regular bank requirements and delays. Credit pull fees, appraisals, LTV maximums, underwriting guidelines, personal financial statements, all that stuff.
So it may not be a scam at all but I think you're very justified in asking for more information about exactly what you'd be getting and what the terms would be. You don't want to start down the road with that person, thinking you're going to get all the speed and convenience of private money, only to realize after it's too late that you're in institutional-bank-requirements land.
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Fred Shatzoff
Lender · Member since 2019 · 604 posts · 160 votes
6y
Without more details it is hard to say. You are not getting that rate on fix and flip loan
1 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
@Steven DAmbra
1. Ask them for their lender license / NMLS ID? If they say they do not have on then they are not a mortgage broker.
If they are a private lender /HML and rate is below 8% then most likely it's a scam. If they want $ even before the application it's a scam
If they have a gmail /aol / yahoo address it’s a scam
Ask them for a reference and someone they lender too and their name and number.
95% of the ones you find on Facebook are scams. Best to go to a meetup group and meet in person
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Kenneth GarrettPro Member
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
6y
@Steven DAmbra
True private lenders are not going to arbitrarily contact you. Private lenders are people you have met at a REIA group or other event and it requires relationship building. I notice the terms Hard Money Lenders and Private Lenders are used synonymously. They are vastly different. None would provide a loan at 4%.
1 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Chris Seveney thanks alot .
Can you refer me to a PML?
0 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Kenneth Garrett thanks alot
0 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Anthony Thompson thank you Anthony.
Any chance you can save me some energy and just refer me to one you've worked with?
0 Reply
Anthony ThompsonPro Member
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
6y
@Steven DAmbra I sent you a msg with that a couple of hours ago.
1 Reply
Joe Cassandra
Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
6y
You can throw a rock and find someone peddling themselves as a HML.
1) If they charge you anything upfront (other than maybe an appraisal fee), they're a scam
2) Legit PRIVATE lenders will never ever solicit you. Those come strictly from personal conversations. Would you offer to hand $100k+ over to some stranger you've never talked to before?
3) PRIVATE lenders will go from 8% and up. Many won't charge an origination fee depending on your exp. etc.
4) HML will typically...if not always...be min. 9% and at least 1% origination...many times 2%. That's in GA at least.
Right now, lending is tightening with rates going up...plus you need to bring more cash to the table.
The benefit of HML is your finances aren't scrutinized like a bank. So if you have a high DTI, or you have a personal LOC that you use for your downpayment, it's okay. A normal bank won't allow you to finance a down payment with debt (except a HELOC in some instances).
Agree with others...4% interest loans are scams...or it's an owner occupied loan. Which, if you say it is but you're planning to flip, it's loan fraud, and penalties over $100,000 + jail time.
3 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Joe Cassandra thanks man
0 Reply
Sam AlbertPro Member
Realtor · Providence, RI · Member since 2016 · 98 posts · 66 votes
6y
@Steven DAmbra Hey Man, One of my investor clients is actually a HML, I can connect you with him. I'll send you a PM.
Also here are my recommendations on identifying good/legitimate Private Lenders:
1. They should be local
2. Speak to them over the phone.
3. All legitimate HML terms are between 8%-13% (8 is a stretch, but one of my sellers actually found a lender at 8% last year.) But for the most part you're not going to find anything less than 10%, especially if you haven't establish rapport with the lender already.
Also, most lenders all charge points. It's typically anywhere from 2-4 points.
Hope this was helpful.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Anthony Thompson:
Thinking about this more, I think your 4% "private money guy" is probably just a mortgage broker for a traditional bank or credit union loan. That scenario, a 4% loan with an origination fee, sounds like a regular bank loan and a mortgage broker.
That may not be the end of the world but with regular bank rates, come regular bank requirements and delays. Credit pull fees, appraisals, LTV maximums, underwriting guidelines, personal financial statements, all that stuff.
So it may not be a scam at all but I think you're very justified in asking for more information about exactly what you'd be getting and what the terms would be. You don't want to start down the road with that person, thinking you're going to get all the speed and convenience of private money, only to realize after it's too late that you're in institutional-bank-requirements land.
Actually those guys advertising 4% are simply Criminals think the Nigerian prince scams for real estate lending.. they are just looking to get teh 1500 up front and you will never hear from them again.. and it works since people are asking about it.. newer borrowers simply dont know what they dont know until they get scammed.
there is NO 4% money NONE the only time that could happen is with close relative or someone you know personally very well NOT anyone you meet on the internet. end of story.. I wrote a blog about it on BP if you want to find it.. explain in detail how these scams work.

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1 Reply
Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
6y
Thanks for the post. This type of information saves people from scams. Whenever I use Hard Money, which is not often, I use a local and reputable firm. I was nervous about fake companies from stories I heard - hence the extra caution.
1 Reply
Kenneth GarrettPro Member
Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
6y
@Steven DAmbra
Private lenders requires building relationships over time. It’s not one contact, it’s probably several. Whether in person, emails (today it’s tough to meet face to face), text messages, references, etc you want to get to know the person. At the end of the day they are investing in you as much as the project. This is not hard money lending, this is private lending they are not the same. Keep that in mind.
In my area a private lender will lend at 10%-12% plus 0-2 points.
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Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Jay Hinrichs thanks alot
0 Reply
Frank Patalano
Rental Property Investor · East Providence, RI · Member since 2018 · 1k+ posts · 1k+ votes
6y
I've worked with a number of HMLs in the RI market.
Shoot I've done a small amount of HML myself but try not too.
NEVER pay an origination fee! NEVER!
Paying points at the closing table is fine.
The normal range that I pay is between 9-13%.
I can't recommend someone at this time because most lenders have told me that their money is fully lent out or others are holding back because of the uncertainty.
I know that I am fully lent out.
Legitimate HMLers will NEVER contact you (out of the blue). They have enough repeat and referral business that they don't need to advertise. I get tons of opportunities to lend even though I try not to.
2 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
thanks @Frank Patalano
0 Reply
Brandon Ingegneri
Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
6y
@Steven DAmbra
With a reputable consistent lender your going to initially pay until you build a relationship and prove that you consistently hold up your end of the deal. As their risk when investing in you decreases, so does the expense that you incur.
1 Reply
Ken Calvin
Rental Property Investor · Sacramento, CA · Member since 2017 · 36 posts · 22 votes
6y
The fastest way to tell is if they want to get paid outside of escrow. Anyone who is legitimate will get paid at closing.
1 Reply
Steven DAmbra
OP
N Providence, RI · Member since 2018 · 67 posts · 11 votes
6y
@Brandon Ingegneri but I need to trust the lender as well it goes both ways. Alot of these people seem to think origination fees aren't necessary. If I can get proof that they're a real company that lends then I'll be more open to pay a small fee .
0 Reply
Brandon Ingegneri
Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
6y
@Steven DAmbra
That is why no funds transfer until your at a closing table and your attorney has reviewed the docs.
1 Reply
Ken Calvin
Rental Property Investor · Sacramento, CA · Member since 2017 · 36 posts · 22 votes
6y
A few days ago, I found a post in a regional investor's FB group that I'd like some opinions on:

Michael Turner
Hello Everyone, Are you looking for a private lender, I’m providing all types of investment loans, with 5% interest rate, with no repayment penalty
michaelturner.privateloan@ gmail.com or Text/Call:+1724 7344256 (spaces added so BP doesn't think this is spam)

What do you do to find out if it's legitimate or if it's potentially someone harvesting information to perform identity theft? We exchanged a couple emails and the communication style didn't give me the feeling that it's from the face on the FB profile. Also, on the FB profile, the people engaging on his posts are from multiple countries using multiple languages. What do you guys think? What is reasonable to ask for to help with his legitimacy?
0 Reply
Anthony ThompsonPro Member
Buy and Hold Investor · Cranston, RI · Member since 2013 · 1k+ posts · 1k+ votes
6y
@Ken Calvin I'm not sure I understand why you want to look for further proof from this person when you already don't get a good feeling.
There's so much money out there chasing so few deals, you can find another lender easily enough.
I'd recommend connecting with local real estate groups and/or local attorneys, ask around who good local private lenders are, and then give them a call or have coffee with them (even if outside and socially distanced).
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