Private Lending

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Emily Wilson
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First time lender - how to prepare?

Emily Wilson
Posted Nov 26 2022, 15:20

We have what seems like a very solid opportunity to be the "Other People 's Money" . I've become a fairly proficient beginner at traditional RE investing -analyzing deals and markets and all that. I get the fundamentals of how to make sure a deal is solid and how to think about it. I am new to loaning money to other people, so I need to learn what are the tools and procedures to analyze a deal from that perspective or what are the places something could go wrong and how do you mitigate that risk. Any suggestions for how to begin learning more about this part of investing?

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Mike Eichler
  • Realtor
  • Pocono Pines, PA
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Mike Eichler
  • Realtor
  • Pocono Pines, PA
Replied Nov 26 2022, 15:46

Obviously just be around the space and people as much as possible and read up on literature specifically pertaining to what you want to know. depending on the types of people you would be loaning to... Lets say you are loaning to flippers, I would read BRRRR, Book on estimating rehab costs, and any other BP books on rehab. If you are looking to loan to STR investors or others of the like I would try to analyze some deals and just read up a bunch on BP's STR and Vacation home investing forum section.

Hope this helps, let me know if you have any more questions. 

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Beth Johnson
  • Lender
  • Renton, WA
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Beth Johnson
  • Lender
  • Renton, WA
Replied Dec 1 2022, 21:02

@Emily Wilson

Sounds like a great opportunity! Check out my book on BiggerPockets called Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending. It covers all the basics on how to fund a private loan safely, securely and legally from the point of view of the lender. Sounds exactly what you need and there's also a Facebook community we admin called Lend2Live: Private Lending Lessons where you can ask questions, learn best practices and network with other private lenders.

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Kenneth Garrett
  • Investor
  • Florida Panhandle/Illinois
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Kenneth Garrett
  • Investor
  • Florida Panhandle/Illinois
Replied Dec 2 2022, 03:50

@Emily Wilson

I agree with @Beth Johnson read lend2live, it will answer many questions.  I have been a lender and borrowed from Private Lenders.  Having a good relationship with the borrower is just as important as lending on the deal.  I am more interested in previous projects that didn’t go according to plan and how did they resolve whatever challenge there was.  Projects that go smooth are what everyone talks about, but I like to hear how they managed a project that didn’t go well and how they handled things with there private lender.

Of course the minimum is a promissory note and a mortgage or deed of trust (depends on your state).  Have an attorney prepare the docs.  Always use a title company.  Never send funds directly to the borrower.  You should be the first lien holder.  There are cases where second position is ok, but as a rule of thumb you want to be first.  If the project goes belly up the property goes to you.  That is your security blanket.  I want to work with someone who protected their private lender even if it meant they took a loss or in some cases the loss was shared.  There is no guarantee in anything.  You can only conduct your best due diligence.

Feel free to reach out.

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Eliott Elias#2 All Forums Contributor
  • Investor
  • Austin, TX
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Eliott Elias#2 All Forums Contributor
  • Investor
  • Austin, TX
Replied Dec 2 2022, 07:06

Don't go in to this without guidance. Before you get to the deal analyzing part you need to know the laws associated with lending money. Repercussions and every risk associated possible