EMD Private Money Lendinf
Lender · CA · Member since 2023 · 31 posts · 30 votes
EMD Private Money Lendinf
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Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
3wYou mean lending to people who want to buy a property but don't even have the funds for a deposit? In other words, lending to borrowers who are undercapitalized? Or lending to those who do have the funds but prefer that you assume all the risk?
Earnest money is deposited while the property is under contract and before closing. At that stage, there are no recorded liens, so these loans are unsecured. What is your plan to protect yourself if the transaction falls through and the seller keeps the deposit you funded?
Unless the borrower has other assets available to secure with a lien, lending unsecured funds to someone who either lacks the capacity to repay or simply wants you to bear all the risk is not a lending model I would embrace.
Ironically, earnest money deposit loans are often made by lenders who themselves lack the capital to make well-secured loans.
Perhaps @Lee Burns, you could elaborate on your process rather than keep it on a private call with no opportunity for public scrutiny. Did you make a single loan, or do you operate a successful, ongoing EMD lending business?
8 Replies
- Investor · Chicago, IL · Member since 2018 · 304 posts · 148 votes3w
Hi Tammy, I've done an EMD recently and am about to do another. I'm happy to connect you to borrowers if you want to hop on a call for an intro some time
- Lender · CA · Member since 2023 · 31 posts · 30 votes3w
@Lee Burns would love to connect and chat more!!
- Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes3w
You mean lending to people who want to buy a property but don't even have the funds for a deposit? In other words, lending to borrowers who are undercapitalized? Or lending to those who do have the funds but prefer that you assume all the risk?
Earnest money is deposited while the property is under contract and before closing. At that stage, there are no recorded liens, so these loans are unsecured. What is your plan to protect yourself if the transaction falls through and the seller keeps the deposit you funded?
Unless the borrower has other assets available to secure with a lien, lending unsecured funds to someone who either lacks the capacity to repay or simply wants you to bear all the risk is not a lending model I would embrace.
Ironically, earnest money deposit loans are often made by lenders who themselves lack the capital to make well-secured loans.
Perhaps @Lee Burns, you could elaborate on your process rather than keep it on a private call with no opportunity for public scrutiny. Did you make a single loan, or do you operate a successful, ongoing EMD lending business?
- 3wJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I would never do this for anyone expect my VERY best long term clients who I know really well. I have done this for a few folks that were buying apartment complex's and needed 100k plus deposits.. this type of deal calls for very high return PLUS a unit in the syndicaiton. Its just a one off type deal not something to build a business around IE value add as I said to my best long term clients.
- Investor · Chicago, IL · Member since 2018 · 304 posts · 148 votes3w
You mean lending to people who want to buy a property but don't even have the funds for a deposit?
No and requesting a loan doesn't necessarily mean the borrower doesn't have the capital to cover
In other words, lending to borrowers who are undercapitalized?
Nope again
Or lending to those who do have the funds but prefer that you assume all the risk?
Nope. I've never lent funds while assuming all risk and I don't personally know anyone who has. My EMD loans come with a contract that requires 5% up front and a period of time where which the loan is refundable
Earnest money is deposited while the property is under contract and before closing. At that stage, there are no recorded liens, so these loans are unsecured. What is your plan to protect yourself if the transaction falls through and the seller keeps the deposit you funded?
See 3a
Unless the borrower has other assets available to secure with a lien, lending unsecured funds to someone who either lacks the capacity to repay or simply wants you to bear all the risk is not a lending model I would embrace.
Lending isn't for everyone and that's ok
Ironically, earnest money deposit loans are often made by lenders who themselves lack the capital to make well-secured loans.
Not true, but bad actors do exist - just like many other aspects of the real estate game
Perhaps @Lee Burns, you could elaborate on your process rather than keep it on a private call with no opportunity for public scrutiny.
All you had to do was ask instead of making negative assumptions and accusations :) The generalization is in 3a and I'm happy to elaborate. I don't recommend anything, but this a strategy that works for some and has for me
Did you make a single loan, or do you operate a successful, ongoing EMD lending business?
My operations are successful, sure I'd call it that. I loan maybe 1 or 2 times per month on average. I always talk to prospective borrowers to understand their experience, the project, and ensure that they know the difference between gap, EMD, and double close loans. Many of my EMD deals fall through and that's completely fine. Not all deals are actually deals
- Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes3w
I know EMD, Gap Funding, and 100% financing has become more popular, but I've been through many market dips and 3 major crashes in my 35 years of lending. What I've noticed in all of those cycles is that in those downturns, some of the first people that lose their money are those doing high-LTV, aggressive financing. I wrote a book not long ago (The Mad Lender's Guide to Private Lending and Note Investing) and covered this extensively. Even institutional investors like "The Money Store" back in the day that went 100% to 125% LTV went belly up at the first downturn they faced. I can think of one guy that really pushes this type of financing and has gotten rich as a marketer, but if you look at his LinkedIn profile he didn't get into lending and real estate until after the last big crash. I have learned over the years that hard money lenders that only focus on collateral and ignore capacity (ability to repay) where they identify a primary and secondary source of repayment before relying on the tertiary repayment form (collateral liquidation) might get lucky on a few deals, but they seem to always get cooked in the end. I know lots of people have done well with EMD and Gap funding for a few deals in the short run, but the ones I've heard from that scold me for my position on this have never managed through a crash. I implore you to not undertake that strategy, I'm pleased we connected a while back, and I very much wish you well in your private lending practice. Take care.
- Lender · CA · Member since 2023 · 31 posts · 30 votes3w
@Doug Smith Hi Doug, thanks for the feedback. I'm not looking to pivot full time into EMD loans but interested in the occasional option that is obviously well vetted and includes all the proper documentation. I understand the risk is higher but there are investors that have been successful and I would love to learn about their strategy to mitigate risk.
- 3wJesus SuarezBusiness MemberLender · TX, FL · Member since 2025 · 131 posts · 54 votes
Quote from @Tammy White:
I am interested in being a PML for earnest money deposits and would like to connect with other lenders that have experience in that space. I currently lend on fix and flips but I like the short turnaround for EMDs. Would love to chat and get feedback.
I'm super interested in learning more about EMD funding, too! I currently work with investors on second-lien gap funding for down payments, but the quick turnaround on transactional EMD deals sounds really appealing, I would targeted toward wholesalers only!
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