Oh have faith yea disciples of the deal; it is possible to find a lender who will loan every penny of the purchase price of a property. Just like it is possible to find a property that can be bought with no money down, but know that both endeavors can be laborious. Real estate is one of the few business games where the ante is affordable to anyone with a little gusto, and success is possible for those with a lot of diligence and perseverance.
Where to Find Private lenders
- Classifieds advertising sites such as Craigslist.com. Look under services and financials.
- Do an internet search using any search engine type in “hard money” or “private money loans” etc.
- Check your local newspaper classifieds under money to lend or finance.
- Go to your Real Estate Investment Groups meetings.
- Check out the BiggerPockets Hard Money Lenders Directory.
- Network with other real estate investors to see who they use.
- If all else fails you can even call mortgage brokers.
Search far and wide and you’ll find a couple of good private lenders. There are no certifying bodies for private money and there is no central association. Anyone with a lot of money can essentially lend it out, so sometimes you may run into a lender who is not legitimate. You can try to check your lenders out by going to the better business bureau website at bbb.org or you can go to the Department of Commerce website. Rarely have I found much on either sight pertaining to a specific private lender.
I like to use Microsoft Excel to build my own black white and gray list. This way you can put in all of the lenders’ information into individual cells. When you come across a new lender you can search them in your own database by phone number, business name, address, individuals name etc. One time I made contact with a lender that just didn’t sound right so I searched his information and found that his phone number was the same for lender I had on my black list, but the name they were using was not the same anymore. That probably saved me a lot of hassle.
What to Expect When You First Contact
Most of these Private lenders don’t want to hear from you until you have an actual deal, but most of you will want to know you have funding before you put out offers on a property — And, you will want to know the costs of that funding so you can price it in to your action plan.
You should just expect that a private loan is going to cost you approximately 15% interest and 4-6 points up front. Count on that. If you’re putting up more money then you can negotiate better terms. Be prepared to be treated like a no-body. Every private lender I know tells me that they treat every first time caller like they just got out of their first real estate guru seminar. The only way to get funding on that first deal is to make contact with several private lenders and submit that property to all of them for funding.
BTW – There are posers in private lending too. There are people who just don’t have the actual resources to fund or have very limited funds. So, they can run out of money before they get to you, even though you’ve been given a pre-approval . . . be sure to have a back up!
Presenting The Deal
Private lenders are used to hearing big talkers and braggers and they will probably expect that you are more likely just another one, until proven otherwise. However, be professional and confident. Your professionalism will show in your deal presentation. Have it assembled when you first contact them for funding. Here’s what you should have:
- Property Address.
- Photos (as many as possible) of the subject property.
- List of repairs and associated costs.
- Good PROFESSIONAL comparable sales. These sales should have closed within the past 6 month and be no further than 1 mile away from the subject property. Do not use Zillow or some like website. Go to a realtor and if necessary, pay them $50 to put together a CMA for you.
- Rough schedule and exit strategy.
- Team member bios (Realtor, property manager, contractor etc.).
- Project summary: Neighborhood info. Incomes, population growth, jobs etc.
For one of my fundings, I showed the lender that the county’s average household income was over $90,000 and the median home price was just over $200,000. That came out to be a price to income ratio of just over 2 when normally anything under 3 is good. All that information is very easily accessable on your county’s website information found at Census.gov.
Build a Portfolio
Once you have deals under your belt, start documenting your success to present to future lenders. Some of them will say that they don’t care about you — they base their lending entirely on the property. But, I guarantee it makes them feel better to see that they have someone with some experience. It just might be the difference on getting funding for a tight deal.
It’s not difficult to do. Just compile a few choice pictures (before and after) and then include the HUD-1 form that you sign at closing when you purchased the home, and the HUD-1 that you signed at closing when you sold the home. Those forms will show the buying and selling information on the home for both transactions, to illustrate your profit or success. I once sought funding for a deal and had a lender turn me down. So I got the deal funded with another lender and it worked out. Upon completion of that deal I took the time to compile the information above and send it to the first lender with a professional note on how the project worked out. That lender funded my next project at a great rate and is now my preferred lender.