All Forum Posts by: Beth Johnson

@Brian Plajer The amount of capital would depend on the market. In my market of WA state, the median home prices around Greater Seattle hover in the 500K-1M range depending on the location. So, if you "only" had 50K for example, that may be difficult to lend out and place it into a safe and secure note. But 50K in the Midwest or other less expensive markets would be a decent loan amount in 1st position with some equity buffer protection. I know quite a few private lenders with "smaller" amounts in my market tend to lend out in 2nd position and typically for earnest money deposit or rehab funds. This can be a precarious place to put your money because the loan-to-value (LTV) would be too high.

WRT tax advantaged insurance funds, known as Indexed Universal Life Insurance or IUL, I don't have personal experience with it, though I know it's used by other savvy private lenders and real estate investors. I would say most people start out with the basics - personal savings, self-directed retirement plans (I got started this way by moving a legacy 401k to a SDIRA after I quit my W2), and then possibly graduate into more sophisticated sources of capital such as using a HELOC against one's real estate portfolio - either a primary or investment property - to earn an interest spread on the loan known as arbitrage. For example, you would obtain a HELOC at a rate of Prime + .75% so your rate would be somewhere in the low 4s currently and then you lend that money out at 10%. Other investments can be leveraged as well including large trade and depository accounts. I have some clients who we place funds for using HELOCs and the latter but none that utilize insurance funds.

I would definitely reach out to a local lender and connect, if they are willing. It'd potentially be a great information share and resource for the future. We have lenders send us deals they can't fund but, most importantly, if you come across a deal that you can't or don't want to fund yourself, you can always broker it to your local HML contact and add a referral fee for yourself. This way you can help your prospect and earn a little $$ on deals that do not fit your lending criteria but may be a good fit for a larger lender with higher risk tolerance than you.

Look forward to connecting with you in our Facebook group. It's a great place to network and share best practices with other new, aspiring, and experienced private lenders of all size and scale! 

@Yadira Gutierrez

Yes most if not all will require you to have hazard insurance policy so that they can get a mortgagee clause/loss payee on it as the lender. The reason is if you rehab and let's say squatters came in and looted it and then set it on fire, the lender can access the claim money as the lender. I'm a private lender who always requires this and we actually had a borrower who took a loan out and within weeks of funding, the very scenario occurred. We were reimbursed by the insurance company within 3 weeks.

@Brian Plajer

Hey Brian!

I am an admin/moderator for the Lend2Live: Private Lending Lessons Facebook group! I am a private lender and also an originator in WA state who directly places capital for other individual private lenders who use us for deal flow and loan lifecycle support. I'm happy to help answer any questions you might have. We will also have a 100-level book about private lending published by BiggerPockets later this year!

Private lending is not rocket science but there are a lot of moving parts and considerations you need to address throughout the process. In theory it's a fairly simple process but no two deals are the same, making it difficult to get into a groove.

I 100% agree with others that this is a relationship based business but I would caution placing too much emphasis without doing due diligence.

Here's an article I wrote about the subject for the American Association of Private Lending last year: https://aaplonline.com/articles/strategy/dont-let-relationships-fool-you/?fbclid=IwAR3k8vV3vLmgX1WpDZ-_Vh9BLa5meen2sJJZbBI1EUfhEOIsceo4fEL4OjY

@Derek Heinz

Search and join WA Real Estate Investing group on Facebook. They have a monthly meet up in Tacoma. Seattle investors club has a weekly zoom call on Thursdays.

@Jennifer Nowak

Usury typically applies to consumer loans and not commercial or business purpose loans. So depending on the type of private lending you do and what state you lend in, you may be capped and you may not be. In WA state, usury is 12% but business/commercial loans are exempt. Make sure to be aware of licensure requirements in your state as well.

@Kellyn Cameron

A few words of advice from an experienced PML, as I've seen it all in 7 years doing this.

- don't let a personal relationship give you reason to skimp on the loan underwriting. Knowing something about someone personally doesn't mean you know everything about them professionally or financially.

- be sure to make your loan secured by placing a lien against the property

- always get a personal guaranty and make sure they have net worth that makes a PG valuable

- make sure you use an attorney to help you out on your first deals (and beyond) so that you're legally protected against usury law and default.

I have a few blog posts and articles about this subject, if you are interested in learning more and you can also reach out to me over DM if you have any other questions! Happy to help!

I private lend using my SDIRA and the biggest need from a custodian, aside from stellar and prompt customer service when you have emergent questions, would be for full checkbook control. It makes the process for funding a deal so much faster. However, you need to know what you are doing so you don't screw things up since you are personally handling the entire transaction. The nice thing about custodians who don't allow checkbook control is they handle the transaction for you; meaning when you fund a deal, they will require a full set of signed docs typically and then fund the deal on your behalf after received. They make sure you don't do stupid stuff but it adds on a considerable amount of time when you talk about funding private deals where the borrower expects funds within a few weeks (2-3+ days added onto a deal AFTER the borrower signs can be very restrictive from a borrower standpoint). 

My first two private lending deals with my SDIRA both went into default scenarios. Each one of them paid off later than anticipated (about 18-24 months rather than the initial 12 month terms) but paid 24% default interest and all late fees in the end. With a healthy protective equity buffer around 60-65% LTV, I was able to secure my principal amount so I wasn't concerned.

By the way, I used Broad Financial to set up my account and their sister company Madison Trust is the custodian. Great company and really solid customer service. 

@Mary Joe

Hi Mary! I am a private money lender in WA and help my clients place money in whole note investments. Happy to help an answer any questions you may have on how to get started, how to protect yourself and how our process works to source, underwrite and fund loans safely and legally.

A few resources to start with would be joining AAPL which has courses, resources and an annual conference. I also provide my investors with a copy of the book - Private Money Lending: Learn how to generate a passive income stream. Covers the basics in lay terms.

Good luck!

@Chris Policicchio

I would be cautious being in 2nd behind a hard money loan as default fees and interest can add up fast and squeeze you out of your equity buffer. We do a ton of 2nd liens (about 1/3 of my volume and almost always behind a conventional loans) and if done correctly, can be very safe. Does the borrower have other collateral to cross it with? That can help shore up the CLTV for you, even if the other property would be in 2nd too. You could also do an assignment of rents but that's not super helpful in protecting your principal amount.

@Jacob Whitbeck

Feel free to add me to that Facebook group! @beth.p.johnson96