How to find Private lenders??

Question

I flip homes in Alabama. I have done 2 so far in a year. One I flipped and sold. One I flipped for a client. I own a contracting company so all work is done in-house by my team. Curious on thoughts of using private lenders? How do you find your private lenders? I’d love to find one and not have the headache of the bank every time I find a property I like. Any advise is good advise! Thanks!

Michael Kinsella · Answer

Clayton,

To address both of your questions...

- Thoughts on using private lenders?

There are, as you might expect, pros and cons to using a private lender as opposed to a bank to finance your projects.

Pros;

1. Faster capital. Private lenders are generally much more nimble and have a faster approval process than banks.

2. Fewer docs. Private lenders generally require less documentation than banks, and some private lenders don't even require a full appraisal (more often the case with private lenders that are very familiar with the location of the subject property, and can perform adequate in-house underwriting).

3. Fast construction draws. The construction draw process for many private lenders is faster than with banks, because they are set up to finance real estate investors/fix and flippers such as yourself. This means that you get your funds faster, because most rehab lenders fund on a reimbursement basis, or once the work is completed and inspected.

4. Less strict borrower standards. If there is a gap in your profile, e.g. a low credit score, there are private lenders that can work around this. You would be hard-pressed to find the same flexibility with a bank.

Cons;

1. More expensive capital. The interest rates and points you can expect to pay are typically going to be higher than with a bank. You can expect to pay high single digits to low double digits in interest rate, and at least a few origination points.

2. Less scrutiny. There is generally less oversight/regulation with private lenders than exists with banks. As a result of this, it makes sense to spend more time understanding the lender that you are working with, and probably get some good recommendations from other investors or real estate professionals that you trust.

- How do you find your private lenders?

There are several ways to find them, and I think @Frank Y. did a good job of mentioning several of them;

1. Local meetups

2. Speaking with realtors

3. Speaking with title companies

Here are a couple of additional ways that quality lenders can be found;

1. Talking with others you know who are doing possibly a slightly higher volume of fix and flips than you are right now. If they've had a good experience with a lender, then chances are you are setting yourself up for success down the road.

2. Online search/databases. Simply by searching online you can find a number of quality reputable national lenders. If you want to get more specific, then you can type in your location, e.g. 'Alabama' along with your fix and flip lender search query. 'Alabama fix & flip lender' would be a reasonable starting point.

Hope this helps!

Frank Y. · Answer

@Clayton Howard Go to your local meetups, talk to realtors and title companies, most of the time they will know some private money lenders. Best of luck.

Patrick Britton · Answer

@Clayton Howard have a chat with your dentist or doctor about the possibility of getting loans from them.  A former client and home builder of mine had his own dentist provide financing, and used the funds to build 6 to 10 houses a year.

Nicole Heasley Beitenman · Answer

Local meetups. There's also a list of HML's by state here on BiggerPockets.

How to find Private lenders??

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