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Private Lender
Posted on 9/27/22 at 11:16 am
Posted on 9/27/22 at 11:16 am
Has anyone had any experience performing as a private lender in real estate transactions? I know a guy that has been doing the buy your house or land in any condition and then flipping them that is offering up opportunities to be a private lender for his operation to free up more liquid capitol to expand his foot print. I would get a guaranteed double digit monthly return on my money while the property is being cleaned up, repaired, etc and then I would get my initial loan amount back when the property is sold. I would be delivering funds directly to the title company when a property is purchased and I would be listed as the 1st lien holder on the property, when the property is sold the title company would cut me a check first. If something doesn't go to plan I'm told I can foreclose and get the property which would be for the purchase price. Not really versed on how that all would work so any advise from our real estate experts would be appreciated. He currently has 5 PL's he works with on different deals from 10 to 100k so we aren't talking about 100's of thousands of dollars here, yet anyway. He has never defaulted on a PL or with a bank. He is currently doing 3 to 5 properties a month across mostly South Texas with plans to expand more into Central and East Texas, average flip period is 2 to 4 months, with 6 being the longest to date. I know the guy some socially and he is a go getter, always moving and working, comes from a good family that own a construction company and gives off no swindler vibes so it is very tempting to dip my toe in a bit, especially after getting bludgeoned this past week in the market and no positive vibes moving forward for at least 2 years. Sorry for the wall of text, any advise and warnings are welcomed. TIA 
4
Posted on 9/27/22 at 11:20 am to TxWadingFool
If the strategy is as safe and sound as presented he would be able to get much cheaper funding from traditional sources. There’s a reason he needs your money and it is not because he wants to share the returns with you.
Posted on 9/27/22 at 11:27 am to Flowbe209
quote:
If the strategy is as safe and sound as presented he would be able to get much cheaper funding from traditional sources
Meh, if he’s been doing it a while, maybe, but very rarely are you going to get a traditional type loan on these types of properties. You’re more likely to get a signature note than use these things as collateral.
OP— this is a pretty common practice. If you’ve done your due diligence, I’d definitely look into. Just realize, these homes are going to be on market much longer than they were even 6 months ago. With interest rates rising, his margins are also going to get lower. I’d recommend making sure you don’t just take his word that these properties are going to sell and sell quick. Look at the properties and market yourself and be your own judge.
Posted on 9/27/22 at 11:28 am to TxWadingFool
why doesn't he go to a hard money lender? They aren't cheap, but they do exactly what he wants.
Maybe he thinks he can get loans cheaper from friends that might now know exactly what the market rates are on those loans?
Maybe he thinks he can get loans cheaper from friends that might now know exactly what the market rates are on those loans?
Posted on 9/27/22 at 11:38 am to Hermit Crab
quote:
why doesn't he go to a hard money lender? They aren't cheap, but they do exactly what he wants.
You answered it yourself. You go through hard money when you have no other options.
His friends can set their “market rate” as well. If both parties agree to it, and it’s mutually beneficial to both parties, sounds like a good idea.
Posted on 9/27/22 at 11:46 am to Hermit Crab
I asked why not use the more traditional lender route, his biggest reason was because of timing. Traditional lenders are going to require appraisals, possibly surveys, approve him, etc. where as going the PL route he can cut sometimes weeks off that process. His average timeline from contact with a seller to closing is less than 3 weeks which is a big deal in the space apparently, he is for sure not the only one doing this and some of the others are large outfits with plenty of capital at hand. One would think he could do the signature loan route but that would be limited at some point as well and would probably equal more personal exposure than he'd be willing to swallow. Great feedback so far, thanks.
Posted on 9/27/22 at 12:25 pm to TxWadingFool
quote:
Traditional lenders are going to require appraisals, possibly surveys,
Just make sure you really trust this guy and know the property before you lend him money if you aren’t getting any third party valuations and just going on his word
Posted on 9/27/22 at 1:48 pm to TxWadingFool
May work out great, may not. Just reading your post, my concerns would be....
Maybe the guy you made the loan to ended up overpaying, since there wasn't an appraisal done ahead of time.
quote:The real estate market has been slowing down thanks to the economy and rising mortgage rates. Houses are taking longer on average to go under contract now than they were 6 months ago. If he has to start sitting on multiple properties for an extended period of time before he finds buyers, is he going to be able to keep up with the monthly payments on these loans while they sit on the market? Or is he going to be over-extended and missing payments?
He is currently doing 3 to 5 properties a month across mostly South Texas with plans to expand more into Central and East Texas, average flip period is 2 to 4 months, with 6 being the longest to date
quote:You can, but do you have the time to deal with all that? Going to the courthouse to file to start foreclosure proceedings. Possibly having a bunch of repairs to still make before being ready to list. The back and forth negotiations with buyers or dealing with issues that come up in a buyer's inspections.
If something doesn't go to plan I'm told I can foreclose and get the property which would be for the purchase price.
Maybe the guy you made the loan to ended up overpaying, since there wasn't an appraisal done ahead of time.
Posted on 9/27/22 at 3:23 pm to TxWadingFool
Hire a good lawyer to prepare loan/lien documents and review the title policy, get a mortgage title policy on the property being used as collateral (if your loan isn't purchase money), and make sure the costs of lawyer/title policy are added to the loan amount.
IF he already owns the property and has started construction/remodeling, there is a whole bunch of stuff you have to do to make sure his subcontractors & materials vendors have been paid up, else they can have a lien against the collateral that trumps your lien.
Also make sure property taxes are current.
If he is buying property thru an LLC, make sure he personally guarantees the note as well.
Make him give you financial statements and credit report.
In other words, do everything a bank would.
Also, have your lawyer check if you plan on doing more than 1 loan like this within a 2 or 3 year period to see if you might run afoul of the mortgage broker licensing requirements.
IF he already owns the property and has started construction/remodeling, there is a whole bunch of stuff you have to do to make sure his subcontractors & materials vendors have been paid up, else they can have a lien against the collateral that trumps your lien.
Also make sure property taxes are current.
If he is buying property thru an LLC, make sure he personally guarantees the note as well.
Make him give you financial statements and credit report.
In other words, do everything a bank would.
Also, have your lawyer check if you plan on doing more than 1 loan like this within a 2 or 3 year period to see if you might run afoul of the mortgage broker licensing requirements.
This post was edited on 9/27/22 at 3:30 pm
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