Private Lending, Driver's License, and a Fake ID

Private Lending, Driver's License, and a Fake ID

Rental Property Investor · Columbus OH (columbus, oh) · Member since 2020 · 143 posts · 71 votes

I have completed a cash out refinance of several of my rental properties as well as my personal residence, and now have what, for me at least, is a mountain of cash.  

I am looking into serving in the role of a private lender as well as other ways to invest this money in real estate.  (My experience is in buy and hold rental, mostly duplexes and quads.)

As I put myself out there, people interested in doing deals are coming out of the woodwork so fast it reminds me of Worthington High School back in the 1980's when I was the one of the first kids my age to get a driver's license and a fake ID, and could thus combine the services of transportation and beer acquisition.  

The sudden surge in popularity was really quite something.


In any case, I have finally found a possible partner that is exceptionally professional, exquisitely organized, has a well established business and thus a business reputation to protect, and seems to have a steady pipeline of deals.  Right now, this is the person I am most likely to choose as a borrower.

I am, however, quite a newcomer to this side of the business.  I have had them send me some documentation that would be signed by both parties in association with the loan, and I am looking for someone, likely and attorney, who can help me assure that this is all set up exactly as it should be, that I am receiving a fair rate for my money, and I am appropriately protected.  

(My gut tells me this company is so nice and professional that there is nothing to worry about, but I am a newb, not an idiot, so these steps will be taken.)

I have attempted to begin educating myself by reading books on private lending, etc, but I would be interested in connecting with someone, again, likely an attorney, who can help me avoid problems and walk me through the process for the first time.  

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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y

@Curt Bixel Wayne nailed it as he usually does. But I will fill in some detail.

The fact that this company appears professional, from the outside looking in is almost meaningless. I know of many investors that put on a good show but are otherwise struggling in some way. It is worse if someone is deliberately trying to take advantage of you. They can dummy up all kinds of documents showing how great they are.

You should ask yourself if this guy is so experienced why doesn't he already have relationships with private lenders and why does he need your money?

The borrower does not send you documentation for the loan. An attorney that works for you specifically draws up the legal documents.  You Need a note, A mortgage or deed of trust, a personal guarantee and a confessed judgement if you can get it and it is legal in your state.

It is not an attorney's job to decide if you are getting a fair rate, however the attorney you choose should regularly do documents for private real estate loans and be familiar with typical rates in your area.

The attorney can also help with vetting the borrower. He or she can check for judgments, other mortgages that he has and any court cases or foreclosures against him.

You Wrote

No you use an attorney every time to write up and record the documents. They buyer pays these costs.

Good luck - Ned

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  • Rental Property Investor · Columbus OH (columbus, oh) · Member since 2020 · 143 posts · 71 votes
    6y

    By the way, I am in Columbus, Ohio, and would prefer someone who is local that I could sit down with, face to face, or mask to mask, at this point.  

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    Obviously, you vet the people and each deal....and as you probably know, you get a Note, and recorded mtg/trust deed, personal guarantees, a lender’s title policy and lend only in first position. 

  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    6y

    @Curt Bixel Wayne nailed it as he usually does. But I will fill in some detail.

    The fact that this company appears professional, from the outside looking in is almost meaningless. I know of many investors that put on a good show but are otherwise struggling in some way. It is worse if someone is deliberately trying to take advantage of you. They can dummy up all kinds of documents showing how great they are.

    You should ask yourself if this guy is so experienced why doesn't he already have relationships with private lenders and why does he need your money?

    The borrower does not send you documentation for the loan. An attorney that works for you specifically draws up the legal documents.  You Need a note, A mortgage or deed of trust, a personal guarantee and a confessed judgement if you can get it and it is legal in your state.

    It is not an attorney's job to decide if you are getting a fair rate, however the attorney you choose should regularly do documents for private real estate loans and be familiar with typical rates in your area.

    The attorney can also help with vetting the borrower. He or she can check for judgments, other mortgages that he has and any court cases or foreclosures against him.

    You Wrote

    No you use an attorney every time to write up and record the documents. They buyer pays these costs.

    Good luck - Ned

  • Rental Property Investor · Columbus OH (columbus, oh) · Member since 2020 · 143 posts · 71 votes
    6y

    Thank you for your advice.  I guess a more direct way of staying my needs would be as follows.

    I am new to private lending.  I need an attorney who is experienced in this area, and I would also benefit from talking with another experienced investor who would be willing to guide me.

    If you can suggest someone, Feel free to private message me with their contact information.


  • Rental Property Investor · Columbus, OH · Member since 2015 · 344 posts · 258 votes
    6y

    @Curt Bixel

    I'd be interested to see how this goes for you. I'm really in no position at this point to lend. So congrats to you on that! Definitely an accomplishment. But, I certainly agree. There is no shortage of investors that are vocal about their need for private money haha!

  • Beth JohnsonPro Member
    Lender · Renton, WA · Member since 2018 · 215 posts · 216 votes
    6y

    @Curt Bixel

    I own a private lending business in WA and support/source deals for many private money investor clients such as yourself. We don't do deals outside our state but would be happy to answer any questions you might have about getting started.

    A few tips to add to what others have to say:

    - buy and read the book Private Money Lending by Gustavo Gomez. On Amazon and extremely informative for those getting started. We gave copies to all our clients one year as a gift

    - on top of title insurance, deed, personal guaranty, etc. make sure to also get a hazard insurance policy for 125% of the loan amount too. I've had a house burn down two weeks after we lent on it late last year. Our client would have been screwed and lost principal if we haven't done that for them.

    - consider a rehab hold back when working with new borrowers if you want more comfort and security in their ability to perform on time and on budget.

    - make sure you understand usury and licensing requirements for your state.

    That's a starter. Lmk by email if you have more questions that I could help answer.

  • Attorney · Austin, TX · Member since 2014 · 888 posts · 759 votes
    6y

    If you want to do private lending, find a local club.  Even in a pandemic, many are doing online meetings.  Check local facebook groups.  You should be doing a lot of what a bank does to underwrite the file: appraisal, inspection, background checks, credit reports.  Fix/flip loans are not so much about credit worthiness, as to the willingness to repay debt.  You should get a copy of their state ID and social security number.  Run background checks.  Should be from $75-200 per person.  You can use a recent credit report they pull, or find someone to do a soft-pull that doesn't affect score (as much).

    Without knowledge/experience, you might as well throw a dart at a list of stocks and invest there.  Eventually you will loose all your capital if you lend it out blindly. 

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