Finding and Approach Private Lenders For Real Estate Investments

   What Are Private Lenders

Private lenders are people that lend money to investors so they can buy investment properties. Typically they are doing so to get better returns on their money than the stock market or other forms of investment have provided. https://www.dondeempenos.com.mx The terms and details of each loan are up to the individual lender. In our experience, private lenders typically offer easier access to funds, lower interest rates and fees, and an all-around easier experience than typical financial institutions and hard money lenders.

Difference Between Private and Hard Money Lenders

The difference between private lenders and hard money lenders is basically just the terms each offers. Hard money lenders are named so due to the fact that their terms are usually much harder on us. The loan fees are usually several points (a point is 1% of the loan amount) and I have heard of some charging upwards of 7-8 points! Ouch! The interest rates are usually high as well. Typically, they charge between 15-18% interest rates. Many hard money lenders are in business to be just hard money lenders. Private lenders typically are just doing so for better return on their money as a side investment.

Where Do You Find Potential Private Lenders

When looking for private lenders, there are a couple of groups of people to consider:

Family and Friends With Money

The first is family and friends that have some money they might be willing to invest. Just make sure that you approach people that have enough to lend on a typical house that you would consider buying. You should only have one lender per property.

There are also a couple things to consider when approaching this group for lending. You need to carefully consider the fact that the person that lends money for your deal may run into a unexpected problem and need to pull the money out of the deal. This is definitely something that needs to be considered and understood before proceeding. The other issue is that most people consider it a bad idea to work with family or friends. If a deal turns into a dud and you lose money, what are you going to do? Where does it leave your lender? Be careful with this. Even if you use an institutional lender, you should always repay your debts no matter what, but when working with family and friends the consequences could be much worse.

We approached several family members and friends when we were getting started. All wanted to help, but most were too conservative to actually commit. This may be different now that we have been flipping houses for almost a decade successfully.

Private Lenders Already Lending To Investors

The other group to approach is the one that is more likely to agree to lend on your investment properties. This is the group of people that already lend money to investors for properties. These guys are perfect because they already know how good these types of investments can be and only need to be convinced that it is OK to lend to 'you'. You won't be selling them so much on the deals as you will be selling yourself. I'll explain how to do this in a later section.

There are several ways to find these lenders:

Ask other investors for lenders they use or know of.

The difficulty here is that most investors don't want to share their private lenders because of the limited funds available from each. You never know though, you might get lucky. If you don't ever ask, you will never find one. Keep a spreadsheet with names and numbers of potential lenders, their contact info, who recommended them, and their terms.

Do some investigating.

This is what we did and I feel this is the single best way to find potential lenders for your real estate investment deals.

Here's what you do:

Scour the MLS for recently sold REO's (bank -owned foreclosures) and other fixer upper properties that were likely bought by investors. If you don't have access, ask a Realtor to do this for you or let you use their system, with their supervision. You should have a good Realtor on your team anyway. Search for more recent sales. Within the past 6 months should be fine. It is important to find lenders that are actively lending. Your search should include areas that you are interested in investing in because the lender will have already shown an interest in lending in that area.

Find the ones that were sold with a loan. You will probably have to check your county records (most are online now) to see if there was a deed of trust or warranty deed with vendor's lien filed for the property for the recent sale. The recorded docs should have a name for the lender and the address where the original document was sent after being recorded. Write down this info.