Private Lending

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Brad Cook
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Lending from private investors

Brad Cook
Posted Nov 26 2022, 00:33

With interest rates being as high as they are is it better to find an investor with the money upfront who won't charge an interest rate and collect a quarterly dividend from the cashflow? I am still learning so if my understanding or terminology is wrong please feel free to correct me.

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Chris Seveney
  • Investor
  • Northern Virginia
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Chris Seveney
  • Investor
  • Northern Virginia
Replied Nov 26 2022, 04:53

@Brad Cook

What I believe you are referring to is a JV partner vs getting a loan. Their are pros and cons to both sides. With a JV you are giving up some upside but also the JV is taking on additional risk whereas with the loan you are bearing the risk but getting all the upside.

There is no right or wrong way, it can be done either way. Typically if it’s someone you know they would consider a jv whereas another private lender would want to do a loan

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Robin Simon#1 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
  • Austin, TX
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Robin Simon#1 Private Lending & Conventional Mortgage Advice Contributor
  • Lender
  • Austin, TX
Replied Nov 26 2022, 07:03

Yes - there is no "magic solution" - all pros and cons, if you don't take out a loan, you are going to be giving up equity which while lowers your interest costs, drastically will cut into your upside potential and also demand return out of cash flow (as you mentioned)

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Kenneth Garrett
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Kenneth Garrett
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  • Florida Panhandle/Illinois
Replied Nov 27 2022, 04:58

@Brad Cook

There are essentially two types of private lenders; equity lenders and debt lenders. Equity shares in the profit or loss of the project, while debt is a return via an interest rate.

A joint venture (JV) can do both depending on its set up. At the end of the day you are asking for the private lender to lend there money long term versus short term. Most private lenders are short term less than a year.

As a private lender I would analyze the deal and look at what my return will be as compared to a debt or equity loan. If the return is 15% or better then I would be happy with the JV, otherwise I would be better off on lending to BRRRR deals and fix n flips continually turning my money over.

You need to look at it from the private lenders position why they would want to invest with you and what is there highest return.

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Eliott Elias#3 All Forums Contributor
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Eliott Elias#3 All Forums Contributor
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Replied Dec 2 2022, 23:11

Read the book "Raising Private Capital"