Top 5 Private Money Deal Killers: Deal Killer #1 – No Experience


As a private lender with many years experience “in the trenches” lending private money (some call it hard money) on residential real estate, I have seen my fair share of potential borrowers with supposedly “killer deals” that end up being anything but killer.  The deal either starts out with a fatal flaw, or during the course of underwriting, something happens that stops an otherwise solid investment.

With this in mind, I would like to share what we encounter in our private lending business as the top things that kill a deal. While there are many factors that can result in a declined loan, I have narrowed it down to five, which I will reveal over the next five weeks.

Deal Killer #1:  No Experience

I wish I could count how many times someone has called me with what is the “deal of the century” looking for a private money loan. They sound like a pro, saying all the right things about the makings of a great fix and flip investment.  When I poke a bit around their experience, the truth comes out.  This is actually their very first deal, however they did just finish a boot camp or a training course with the latest and greatest real estate trainer or “guru”.

Uh oh.

Okay – before I go any further, I certainly don’t want to upset all of you who are fresh out of boot camp or for that matter my real estate training friends who do a great job training new investors each and every day.  HEAR ME OUT!

For the record, what jump started my career in real estate investing was back in 2002, my wife, who could not sleep one night, ended up watching a Carlton Sheets infomercial on TV at 2 am, and I woke up the next morning to her having ordered his entire training tape series (yes, tapes – old school) on a whim.  My first reaction… “You did what?”

I ended up listening to every single one of his tapes and that laid a solid foundation of EDUCATION for my young real estate investing career.

Now here is the key . . . my next step.  I found someone much smarter and wiser than I was and asked him to help me make my first investment.  I asked someone who was a neighbor of mine, a local real estate broker and an investment property manager, and he helped me find my first two rental houses (which I still have today).  He was paid a commission, and I bought him a few lunches along the way, and the rest, as they say, is history.  He helped me turn my education into EXPERIENCE.

It’s the old catch 22… you need experience to get experience.

So here is a question you are probably asking.  Will my company, or other private lenders, lend money to someone who does not have any experience?  Absolutely.  However, key to our lending decision is what is that person doing to offset the fact that they are new to real estate investing.

Here are some suggestions to those of you who are new to real estate investing.

Find someone with wisdom from the school of hard knocks (there are many out there, especially in today’s world) that would be willing to mentor you and partner in a couple of deals with you.  You can find them at a real estate investing club, online, or by just networking in your local market.  At investing clubs, they usually stand in the back of the room, have a few gray hairs (or like the guy I worked with, a few hairs) and have many stories to tell of what to do and what NOT to do.

On rehab to retail type projects, find a general contractor who focuses on fix and flips and has a proven track record for both results and character.  Don’t hesitate to pay them more than the green contractor who has never done a flip.  It will be worth your investment.  They will teach you the ropes and show you how to best manage your budget, and they will finish your project, probably on time and on budget.  You will save way more in the long run by working with an experienced contractor who can teach you along the way.

Don’t do it alone.  Be willing to give up a share of the profit in order to get more experience with a seasoned pro.  People love to help people – find someone who will be willing to work with you and be generous with them both in your thanks and with a piece of the pie.  That will be a great investment.

Coming up in two weeks?  Deal Killer #2:  A Poor Exit Strategy

Photo: Jim simonson

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About Author

Bill Worsley is an active real estate investor and private lender through his company BridgeSource Capital. He lives in Davidson, NC and over the past 20 years has invested mainly in the Charlotte and Raleigh, NC markets. He is a Tar Heel born and bred, and when he isn’t working in real estate, he loves spending time with his family (4 kids keeps him busy) and spending as much time as possible with his boys white water kayaking the rivers of the beautiful state of North Carolina.

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