New to Real Estate · Murfreesboro, TN · Member since 2018 · 12 posts · 2 votes
Hello everyone,
So my question is: how hard is it to find a private money lender if you have a good deal, but NO experience?
I understand it's a loaded question so bare with me here
-The one thing holding me back the most is that I'm afraid I will get a deal and then I won't be able to fund it, causing me to have to back out and lose credibility with Title companies, agents, etc.
-Being new, the best thing I can do is get an Agreement of Sale on a gem of a deal. Great deals usually have to close really fast though... which is why I'm wondering how quickly you think that I can find someone to fund it? or to just fund part of it?
-I would post the deal on the REIN facebook page and here on BP. these are the only ways I know of to connect with lenders.
-So what I'd like to get out of this post is:
-From a lenders perspective, would you even consider loaning to a newbie for 20%? 30? 40?
-How well do you typically know the people you're lending to?
-would you be more likely to consider funding a portion of the deal? Like if I funded the purchase and a lender funded the rehab?
Nashville, TN · Member since 2017 · 37 posts · 41 votes
7y
Michael, get as long as the seller will possibly give you on the purchase and sale agreement I'd say up to 60 days but no less than 2 weeks. This will give you time to go and hunt for the right lender while doing your other due diligence. Your likely private funding sources will be at meetup groups in your area so go and network. The bonus to working with a private lender is they will be experienced and will be able to tell you if its a good deal or not and if your rehab budget or ARV is off.
As far as doing an equity split of the deal, this will largely depend on how much money there will be to split at the end. The lenders I know get about 3% origination fee and 12% annually. They are protected with a 1st position lien even if you lose money on the deal.
Ooltewah, TN · Member since 2017 · 75 posts · 38 votes
7y
Do you have anyone in your network that help fund your first few deals? Maybe a relative (or two)? It will be easier to attract money once you have a one or two deals under your belt. I'd also suggest attending local REIA meetings and see if you can network with investors there....it may take time to build the relationship so have patience...
To answer your question about loaning to a newbie I'd say it all really depends upon the terms. Interest rate is one aspect but what kind of other assurances can you give? Are you willing to provide first lien position or do you have another way to providing some kind of way to minimize lender risk?
New to Real Estate · Murfreesboro, TN · Member since 2018 · 12 posts · 2 votes
7y
I'm glad you mentioned that, I have assumed 1st lien would have been a given for a private lender, but I probably need to mention it more.
I found a hard money lender who will loan 100% of purchase price, but the fees are high and I would also likely need help funding rehab costs. In this case, I don't think the private money lender would be able to hold 1st lien, but they would have less money in it, and I would be able to pay them higher returns.
I've reached out to most of the family/friends who would be able to fund it, but most of them have their money in the stock market and are either scared or don't want to go through the hassle of getting the cash out. Maybe I should offer higher returns or like you said first lien position...
If you were in my situation (trying to get funding from people you don't know), how long would you give yourself from the time an AOS is signed until closing? one week? 2 weeks? I will have to decide this for myself before I can even start negotiating. Obviously shorter time will lead to a better deal, but I don't wanna make it too short and then not be able to find funding.
Nashville, TN · Member since 2017 · 37 posts · 41 votes
7y
Michael, get as long as the seller will possibly give you on the purchase and sale agreement I'd say up to 60 days but no less than 2 weeks. This will give you time to go and hunt for the right lender while doing your other due diligence. Your likely private funding sources will be at meetup groups in your area so go and network. The bonus to working with a private lender is they will be experienced and will be able to tell you if its a good deal or not and if your rehab budget or ARV is off.
As far as doing an equity split of the deal, this will largely depend on how much money there will be to split at the end. The lenders I know get about 3% origination fee and 12% annually. They are protected with a 1st position lien even if you lose money on the deal.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
7y
@Michael Dill Just curious if it's a buy and hold (not sure, you didn't mention), why not go to a bank and pay 5% interest vs the 20% + you're offering? Make the offer now and put in a financing contingency, which is pretty standard. Certainly it's not a great as an all cash deal, but a pretty straight approach to buying property.
There are many smaller local banks that offer purchase + rehab financing, you just have to make some phone calls.
New to Real Estate · Murfreesboro, TN · Member since 2018 · 12 posts · 2 votes
7y
That's a good point I do need to try to call the smaller local banks, I was just curious about private money. Also I'm not counting on the local banks financing for 0 down, but it won't hurt to ask.
I found a hard money lender that will finance 100% of purchase price and rehab cost up to 70% of ARV. the catch is that they wont pay for rehab until each stage is complete, so I'll have to pay contractors as they go, and then get paid back by the HML. and of course the fees are pretty outrageous.
The girl on the podcast today said she used 0 interest credit cards to fund some of her rehabs, so maybe i could do that.
idk the more i talk about it the more i feel like I'm ready! haha I need to go ahead and get pre-approved and and start marketing!
That's a good point I do need to try to call the smaller local banks, I was just curious about private money. Also I'm not counting on the local banks financing for 0 down, but it won't hurt to ask.
I found a hard money lender that will finance 100% of purchase price and rehab cost up to 70% of ARV. the catch is that they wont pay for rehab until each stage is complete, so I'll have to pay contractors as they go, and then get paid back by the HML. and of course the fees are pretty outrageous.
The girl on the podcast today said she used 0 interest credit cards to fund some of her rehabs, so maybe i could do that.
idk the more i talk about it the more i feel like I'm ready! haha I need to go ahead and get pre-approved and and start marketing!
Yeah that is option, fund rehab with cc then get reimbursed by lender. You can also look at line of credit at home depot etc to help with materials then once work is complete pay it off with the HML funds disbursed to you.
However some lenders want to see liquid cash reserves prior to closing so you still probably need some cash.
Do you own a primary residence? Or does a potential partner? Sometimes just having owned a property helps count towards at least some experience.
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
7y
It sounds like you have very little to no personal financial resources to pull this off. While it can be done, I think you're going to be on pretty thin ice. Paying the kind of interest rates you're talking, I'm not sure where you're going to find profit? If you're talking about a "flip" make sure to allow for ALL the holding costs, assume your exit time frame will be longer than anticipated and don't be overly optimistic on the ARV.
New to Real Estate · Murfreesboro, TN · Member since 2018 · 12 posts · 2 votes
7y
@John Teachout yes John you’re exactly right. I will plan for the worst, and then add some safety (maybe 10%). It will be difficult for me to find a deal in this market that will work with my expensive loan costs, so I’m spending a lot of time/money on marketing.
Lender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes
7y
@Michael Dill There are local HML that will fund 100% of a good deal, and you would just pay for closing costs. Even for a brand new investor...and it would cost you nowhere near 20%. I recommend reaching out to them first to discuss your cash reserves and see what will make sense. They may even know of some great off market wholesale deals and can connect you with some of the better wholesalers in town.
There are also a lot of terrible lenders out there that don't have your best interests in mind, and a lot of new ones popping up all the time that have no idea about the value of a smooth process.
Hendersonville, TN · Member since 2015 · 21 posts · 10 votes
7y
@michaeldill. If you are talking about a flip, some newbies I know offered to do a JV (joint venture partnership) with the lender and agreed to pay the lender a high percentage of profits after the sale. Of course the lenders vet the deal carefully. For example, one person getting started payed about 50 - 60% of profits to lender partner. You may look for "money partners". They typically only pay rehab costs as you go, and check to make sure repairs are done prior to paying contractors. Good luck.