Private Money Lending Explained Once and For All! -
PRIVATE MONEY. EXPLAINED. ONCE AND FOR ALL.
I wanted to write a blog post about a very important topic that I often get questions on: how to get private money for real estate. I wanted to clear up some misconceptions and hopefully add some serious value to your day with some facts, some brutal honesty, and some information that is sorely lacking in clarity out there. I also touch on some concepts you may not be familiar with when it comes to financing, like “credit partners”, “joint venture partners”, and a few others.
It took me some time to put this together so please read carefully, leave your comments, questions and feedback at the bottom.
Also, if you find this Private Money Explained article valuable, please share it on Facebook and Twitter using the buttons below.
Private Money – The “Dreaded Question”
I get about 5 emails a day saying:
“Daniil, can you send some private lenders my way? I have a great deal!”.
And the answer is a flat out “No”.
It’s not because I am a bad guy or don’t want to help you. But rather because you don’t have a fundamental understanding of what a real private money lender looks like.
So let’s backtrack a bit and go over some basics, then tackle your misconceptions and then finally give you some ideas on how to find legitimate private money:
“Private Money” – this term is widely misunderstood, at least partly because of faulty advertising online. The term “private money” refers to loans made between individuals. When you get a “private money” loan, it’s typically from a friend, a business contact, an individual you’ve built a relationship with. Unfortunately lots of hard money lenders advertise themselves online as “private money” which causes a whole lot of confusion.
Don’t believe me?
Google “private money lender Denver” or “private money lender Richmond” or any city for that matter. You’ll find nothing but hard money lenders advertising their services. I’ll explain the difference below if you don’t understand it – it’s HUGE.
Difference between Bank Vs. Hard Money vs. Private Money Explained:
So….let’s back track even further and break down the types of financing available out there for real estate deals briefly so you understand the difference.
1) Bank Financing.
When it comes to investor loans, these can be broken down into 2 categories:
Conventional Lenders. This is the 30-year mortgages that Wells Fargo, Chase and other big banks provide mostly on owner-occupied properties. They do, also, provide loans on investment properties. But to qualify is extremely difficult and there is a strict limit on how many financed properties you can have before they cut you off.
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The conventional loans must all fit neatly into a strict set of guidelines set by Fannie Mae or Fredie Mac to be underwritten because after origination, they all get sold into the secondary market by the banks that originated them.
Bottom line: if you want to finance investment properties, whether it’s flips or buy/hold, forget about going this route. Flips are out of the question period – they won’t finance rehabs unless it’s your personal residence. And for buy/hold, it’s painful and you probably won’t qualify anyway. I would rather get a massage from Edward Scissorhands than ever go through that underwriting process ever again.
Local Community Banks and Credit Unions. Unlike Conventional Lenders, these are small, local banks who typically do NOT sell the mortgages they originate. Instead, they keep them “in-house” or in their portfolio, which is why they’re called “portfolio lenders”.
Because of that fact, most of these banks can set their own lending guidelines and lots of them are better pre-disposed to working with investors.
Pros:
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They will finance rehab projects (including flips and new construction). I am currently financing a number of new construction projects where the bank is funding 85% of the total cost of my project . *Every bank is different and has different appetite for certain types of loans. So you may talk to a few before you find the right one
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They will finance investment properties for buy/hold with no limits on how many you can have. There is no silly “10 maximum property” limit, though each bank will have a maximum desired “loan concentration” for a given investor. (That limit is typically well into the millions though. )
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Local community banks are MUCH easier to deal with than conventional lenders. The hierarchy and bureaucracy when it comes to underwriting is much easier to navigate. They understand the local market, they understand our business and they are MANDATED to lend locally
Cons:
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You will still need “skin in the game”. For example if you’re financing a flip, you’ll still need 15% cash in the deal if they finance 85% of your total cost.
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You will still need to meet underwriting standards of the particular bank: FICO score, debt to income, etc. They will look at your global balance sheet, cash flow, and still require “personal recourse” for your loans
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Most of their loans are basically “commercial loans” even though they may be on residential properties. That means these will NOT be 30-year fixed rate mortgages. The local banks are too smart for that. Most of the loans I’ve taken out locally have had a 20-year amortization with a 5-year call or reset. This creates some serious interest-rate risk for you as a borrower 5-years out (or whenever that reset or call occurs).
Bottom line: If you are going to seek bank financing for your real estate deals, “portfolio lenders” are the way to go. You’ll deal with smart loan officers who “get the joke”, not some idiots 6 states away. But you’ll still need to qualify and 99% of the time you’ll need to bring some kind of cash or equity to the deal, whether it’s for flips or buy/hold.
An idea: If you want to go after bank financing and can’t qualify for loans yourself, find what’s called a “credit partner”. A credit partner is someone who looks very good on paper: great, verifiable income, great credit score, low debt to income ratio. They will co-sign the mortgages with you in return for a piece of the deal. Assuming they bring no cash (just their credit) to the table, it can be a great deal for someone to become a passive investor in your deals solely through taking on some “mortgage risk”.
2) Hard Money Lenders.
These are the guys that will eat your lunch and then bill you for it. They often advertise themselves online as “private lenders” which just serves to confuse the crap out of unsuspecting investors. Now, look, there ARE positives about dealing with the hard money guys so let’s talk objectively here for a second.
If you are looking to buy and hold, then hard money is NOT an option for long-term financing.
But if you are doing flips, then hard money lenders play a legitimate role in the marketplace for this types of deals.
Pros:
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Typically very easy to qualify – they don’t care about your credit, balance sheet, FICO, income, etc
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Fast money – can typically close quickly (faster than bank financing)
Cons:
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VERY expensive money, so you need to make sure your deal has enough profit margin to handle the “cost of money”. You’ll typically be charged anywhere between 3 and 6 “points” or % of the total loan, PLUS 10-16% interest rate on top of that. If you look hard enough you’ll find even more expensive loans out there. For a typical flip that takes 6 months, on average your cost of money will end up being 10-15% of your project cost (or loan amount). That takes a lot of “meat off the bone” if you know what I mean.
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Short-term money. Hard money lenders make their profit on “turning their money” and thus on points. They want to lend, charge the points, get that money back quickly and then put it out there to another investor, charging points again. So most hard money loans will typically be for 6-12 months, after which the loan is due. Terms will vary, from giving a hard money lender ability to take the property after the loan is due (or at least start foreclosure) to simply bumping up the already high interest rate to a sky-high “penalty rate”.
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These days, even hard money lenders will want to see “skin in the game”. In other words they’ll want to have you bring some cash to the deal.
Bottom Line: very expensive, very short-term money and 100% financing is going to be very tough if not impossible to get there, just like with bank loans. Make sure you have an assured exit strategy if you take on hard money.
3) Private Money Lenders.
Ok, we finally get to the topic with which we started! Private money. The REAL private money. Once you are able to find TRUE private money, the advantages are immense vs. banks or hard money lenders:
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100% financing for your deals
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Long-term money with no calls or resets
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Flexible underwriting (no credit checks, etc)
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Cheap money (especially vs. hard money)
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Scalability (no max loan or property limits like with conventional financing)
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Non-recourse financing (liability limited to the property or company, not your own personal assets)
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Etc
So what IS private money lending and how do you get private money lenders for your real estate deals? Let’s start with definitions:
A Private Money Lender: This is an individual with whom you have a relationship of trust who chooses to invest in your deals. It is NOT a professional lender, a hard money lender, a money broker, a transactional funder, or anything of the sort.
A typical private money lender is a guy you work with at the office, your dentist, your doctor, the guy/gal you work out with at the gym, a retired aunt or uncle, your accountant, someone you used to do business with, a guy you met at your church, a friend of a friend who is looking to diversify, etc. Whoever they are, they are someone who has been relatively successful in another profession and now has some idle cash or a 401K/SDIRA which is not earning them much. They are unsatisfied with their returns they are currently getting. Maybe they even thought about real estate already but don’t have the time/knowledge to start investing themselves.
Whoever they are, they are someone with whom you have built or are building a relationship. You’ve talked to them about your real estate deals a few times or maybe just about your strategy. They’ve told you about their “money problems” and you realized that you can help them by letting them invest with you.
Do you see where I am going with this??
A real private money investor is not someone you’ll find online by googling “private money lender”. And they are certainly not someone who I can refer to you. So please don’t email me asking me if I can “send some private money lenders your way”. MY private money lenders know ME, trust ME, and are typically local to MY market. I’ve spent a long time building that trust, credibility and track record with them. Even if I wanted to send them your way, which I most certainly do NOT, they would have a hard time working with someone who is far away and whom they don’t know at all. Relationships take time to build. But once you build them, the pay off is amazing.
I promised you some harsh honesty and here it was.
==>So how do you find, build, create, mold your own private money lenders? <==
I break that down into 3 categories:
1) Tap your existing network
2) Expand your existing network
3) Market for money
1) Tap Your Existing Network: Sit down and make a list of all of your friends, relatives, colleagues, people you go to church/synagogues with, people you work out, your doctors, dentists, CPA, your cash buyers, your banker, your title co people, etc etc. Write it down and make a list.
Now, you don’t need to go asking these people for money.
Asking anyone anytime for money is a HUGE mistake.
Read that again. Did you read it? Write it down if you need to. Don’t ever ask anyone for money.
Instead, reframe your mindset:
Change of frame 1: You are not looking for money. You are a capable, knowledgeable, driven real estate investor and deal maker. From time to time, you have opportunities for other individuals to work with you, invest along-side you, and earn a great passive return secured by real estate.
Change of frame 2: You may have money problems because you are poor or broke or just struggling to make ends meet. BUT…the middle class, the wealthy, even the ultra-wealthy have money problems too. They have worked hard to become successful in their respective fields, save up some money, maybe accumulated good size 401-Ks but now they don’t have a decent place to invest their money. They are worried about preservation of capital (stock market doesn’t guarantee that at all). They want cashflow (very few stocks have a dividend yield above 3%). The CDs these days pay less than 1%. You get the picture?
So you are the SOLUTION to their problems. Not someone begging for their money. You are the competent, ethical, determined, driven, practical solution to their “money problems”.
So…once you reframed your mindset, you can now start talking to people in your network about your business and your goals the right way.
Say this: “Hey, I am starting to do some really exciting deals here and from time to time I’ll have an opportunity for people to invest totally passively in my deals and earn great returns. Do you know anyone that would be interested in briefly discussing this?”
Get it? You don’t even have to ask the person you’re talking to directly – just ask them if they know someone. If they themselves are interested in discussing your deals, they’ll tell you.
Some things that may help you:
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A simple credibility kit
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A sample deal profile that shows how the deal will work and potential returns to your investors (like this) (or like this)
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Put together a simple chart that shows current CD rates, historical stock market performance indicators, etc – to show people that your projected returns are higher than alternative investments AND secured by real estate
2: EXPAND Your Existing Network: If you sit down and make a list as I suggested above and then exhaust that list, or maybe that list is fairly small, then go and expand your network.
YOUR NETWORK = YOUR NET WORTH
So you want to not just blindly expand this network, but you want to expand it with the right kind of people. You want the right people in your network.
Some ideas:
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Volunteer at a local charity. People that have achieved a certain level of wealth and comfort often like to give back. Local charities are great places to meet quality people. You don’t have to give money – just your time. Finding a common passion for helping others is a great way to connect with someone and build a relationship of trust.
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Local Toastmasters Club. Every town has a bunch of them. This is where entrepreneurs, business professionals, and executives go to hone their public speaking skills.
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Your church/synagogue/etc. They all have social functions. Go meet people. Get to know them. Talk about what you do – but from a “power” position, not a “needy” position.
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Local Chamber of Commerce. You’ll find all sorts of events hosted by your local chamber in your town. Great networking opportunities.
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Local Real Estate Investment Clubs – you will every once in a while find people who attend because they are curious about real estate investing. They have often thought about investing, maybe they even dabbled. But they don’t know what the hell they’re doing and often don’t really have the time to do it properly anyway. They can be great potential partners.
3: Market For Money:
This is not something I’ve ever done or choose to do, but there are plenty of people that do this and plenty of gurus that teach it.
You can create direct mail pieces and target:
1) Lists of accredited investors in your area (pulled from sites like www.listsource.com or www.melissadata.com)
2) Lists of people doing actual private money lending in your area currently. This data can be pulled from your local courthouse county records, or again, from www.listsource.com
3) Lists of people with self-directed IRAs
4) Etc
Now, if you choose to go this route, I highly suggest you get yourself familiarized with the current SEC rules and regulations. They are not someone you want to mess with. Do your research and maybe consult a competent SEC attorney about what you can and can’t do when it comes to marketing for money.
Here’s the basic rule of thumb though: until you have an existing relationship with a potential lender/partner (you’ve had a few face to face meetings or calls), do NOT discuss any deal particulars, particular rates of return, etc.
Do NOT do this: mail someone a letter saying “I have a great deal with a guaranteed 12% return on your money!!”.
Do THIS instead: mail someone a letter saying “My name is ____, and I currently have a successful real estate business ____. From time to time I have opportunities for others to invest passively with me and earn great returns secured by real estate. If you’d like to discuss this further, please call/email/visit my site/etc”. Be VAGUE when you first contact people.
In your letters provide as many ways to contact you as possible. It also doesn’t hurt to have some sort of a “bribe” for them to reach out to you, like a free report that helps them someway.
*** IMPORTANT: Please consult with a qualified SEC attorney to make sure your marketing materials and mailing pieces do not break any of the SEC rules that have to do with soliciting investments. The rules keep changing and it's important you stay on top of them, protect yourself and your investors!
Some Advanced Concepts and Resources for You:
Now you should understand what real private money is and hopefully have some good ideas on how to find it. The beauty of private money is that it’s totally flexible in terms of how underwriting and deal structuring is performed. Whatever you and your private money lender agree on, goes!
So be creative in how you structure deals to meet the needs of your lenders/partners. You can:
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Offer just a fixed % interest rate
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Offer points and a fixed % interest rate
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Offer points only
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Offer a fixed % interest rate and a profit split on your deals
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Offer just a profit split – this is called forming a “joint venture partnership”
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Etc etc
Obviously, as a real estate investor, your #1 objective is to lower your “cost of money”. You want your funding to be as cheap as possible. But you also want to make it attractive for lenders to work with you. Sometimes that means offering them a “carrot” in the form of a high potential return if the deal works out the way it’s supposed to.
WHAT DO DO NEXT:
Download Special Report on 6 Ways to Structure Private Money Deals!
Watch this video to see a better approach to asking for money
Learn to Build a Killer Real Estate Credibility Kit
Create FREE Rehab Valuator Lite Software account here
And, of course, if you are NOT using Rehab Valuator Premium to create deal pitches and present your deals to private money lenders and hard money lenders, then you really should…asap.
Leave me your questions, comments, feedback below and share this with your friends/colleagues if you found it useful.
Daniil Kleyman
Please share this post using the links below!
Comments (113 comments so far)
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Keith Hilliard
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Daniil
Keith – if you are still looking for a list of private money lenders, then I think you missed the point of this article 🙂
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Nathan Martin
Well done, informative for beginners like me- thanks Nathan
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Daniil
Thanks, Nathan!
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Leslie Mae
Like most wannabe investors out there I thought that Private Money meant money from any source except the institutional lenders. Your comments are clear and to the point and will certainly help to disabuse many of their misconceptions of private money.
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Daniil
Many make that mistake, Leslie!
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Thank you, Daniil,
This was great of you to take the time to explain, very well, the difference between the lenders.
I am glad you found me originally; I purchase Rehab Valuator and Rental Valuator.-
Daniil
Glad you found us as well, James and thanks for your business!
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Kurt S.
Daniil: well written blogs like this are valuable. You hit on all of the very important points that many investors don’t understand. By giving examples of what NOT to say and what TO say in its place you will have saved a number of people from meeting those nice, no nonsense people from the local SEC offices.
Thanks for taking the time to write the blog.-
Daniil
Thanks, Kurt! Sometimes know what NOT to say is just as valuable as knowing what to say 🙂
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Mitch
Thanks, Daniil. Your message is clear.
As an investor with a company size of “me,” I have been wallowing around in the private money dilemma for months, reading everything within reach on the subject. Leaving one’s comfort zone is hard enough, but some of the tactics promoted out there make your skin crawl.
It’s a sensitive area — money — and the only loan you’ll get if you come on like an aggressive beggar is maybe some reluctant grocery money from your mom.
Your post spells out the proper strategy. Many aspects of real estate investing require a bold soul to make things “happen.” But I read in your message this is an area where patience, a little organization, and a subtle approach are appropriate.
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Daniil
Mitch – it’s not just about being bold but strategic in how you interact with people and build relationships. That’s the key
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Murphy Rivenbark
I have heard your comments at least a hundred times before therefore I can say you are right on target.
I very much agree there are a lot of Hard money lenders trying to say they are private investors. -
Outstanding blog, Daniil!
This is the first time I have read the good, the bad and The ugly surrounding This topic.
Thank you for your honesty!!
I wanted your input on a lender by the name of Aurelian.
They offer non-secured signature loans from $500 to $150k.
They charge an upfront one time fee of 15%.
Have you heard any feedback from anyone who has used them?
Thanks in advance.-
Daniil
Joe – unsecured? If it sounds too good to be true, it probably is. And beware of anyone that asks for money upfront before doing any transactions. I’ve never heard of these guys but be careful and do due diligence well before giving them anything.
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Kelvin Roberts
Good Stuff. Just made investment into the program 2 days ago. Now implementing the program. Great software program. Counting down to cash. Stay tuned.
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Daniil
Glad to hear it, Kelvin! Let’s get that cash rolling in on your end!
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Chaz Smith
Great Blog post Dan. Best and most complete explanation of “Funding” I’ve yet to read!
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Daniil
Thanks, Chaz!
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Howard Greisman
Great article.
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jeffrey gordon
Danill, great article! I sent this off to a bunch of folks today who are just in the process of raising some private money.
Have you looked into the Fundrise.com folks out of DC and what they are doing with crowdsourcing?
Pretty exciting to see projects up to $1,000,000 can be run through their program and raise money in small amounts from local investors wanting to invest in their local community etc. It is still just out of the box, but very exciting that they are building the infrastructure to open up investing to the masses and not just the accredited investor.
thanks
jeffrey
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Daniil
Jeffrey – haven’t heard about them, but have started hearing about crowdfunding for real estate deals. Still not sure what I think of the concept.
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Mike Swanberg
Thank you Daniil for taking the time out of your busy schedule to give us the great advice/tips/blogs/videos/webinars etc. I bought your Rehab Valuator Premium a few months ago and it is an absolute genius system you came up with Daniil! I use it a lot. Not only did you make this awesome system but the constant emails with the advice that come with being a member are priceless! About a month ago you had a webinar with Mike Nelson for Wholesaling 101 which was great. I signed up for the lead website he mentioned on the webinar & the one you just mentioned above called Listsource.com. I did some marketing about two weeks ago to absentee owners & with the first 100 mailers I received 5 calls. Two of them are very promising. I am now mailing out to them every week which I am sure will yield more results. Daniil I just want to say I can not thank you enough for your continued support & advice you give with such the small Investment I made. That small Investment will pay off a Million fold! You rock Daniil!!!
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Fantastic Daniil! I wish I had read this a long time ago. Perfectly laid out to clear up the definition of the different ways to get capital!
I wish I had people sending me multi-family deals on a regular basis.
It seems there is more capital than truly good deals in multi family out there. When they are there I can get money. It’s converse perhaps in single family but I really don’t deal in that space. You have a fantastic resource here and I hope (know) that your readers appreciate your hard work!
All the best
Mike
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Daniil
Thanks, Mike! Definitely tougher to get multi-fam deals these days at any kind of decent cap rates in most markets, my own included. I really wish I had more capital and bought more 2008-2011. I think we’ll all look back and have regrets about not buying more then
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Terry A
Danill, I have a number of good multi’s in the Atlanta and Phoenix area that I have available. If Mike Williams or anyone else is looking for Mulris or are interested in JV in multis drop me a line at terry@turnakeypropertyinvestments.com
Thanks! -
tory johnson
Thankyou Daniil, I found your information you sahred interesting and well thought through. You are the first to offer me valid and free advise. If I were not already knowledgeable on how these processes work, I would want someone to say to me what you said in the blog. I am further along though in developing my business and would like to discuss another day what knowledge you may be able to share with me there. I love the software demo and am going to use it in my business somewhere.
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Joe
Good info, I don’t believe I ever thanked you for the info you put out,I try to read every piece you put out. Thank You! Gives people like me a chance to gain some knowledge in the investing world of real estate.
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Kathy
Thanks, Daniil! Great information!
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Shirley Thomas
We are looking for investors, who are looking to invest $k, set back and pull in 10% per on ther
money. -
Charles
Always excellent information…pointed out some tips I had overlooked. Great value in your blog and in the Rehab Valuator.
Thanks
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Niko
Great Stuff Daniil! There’s one part missing though, and I’ve had struggles with this myself. When you find a private investor and they are willing to invest with you, how do you handle the paperwork and money portion? I have a private investor that is new, so what paper work should I use to secure him? What do you use between you and your private investors, and how do you handle the money? Thanks again for all the great things you are doing!
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Daniil
Niko – the paperwork really depends on your deal and your state laws. You can you a deed of trust, a promissory note, a joint-venture agreement, etc. There’s no “one fits all” solution
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Cheri Myers
I so appreciate your education and guidance on this subject matter. I look forward to using your software to keep my deals on track but also to build my credibility.
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Joel Rossell
Daniil,
Thanks for the concise info.
Joel -
Hi Daniil,
I have been listening to you since I first bought you Rehab Valuator -pro when it first came out. Just read your post and found it to have a lot of common sense. I’m a contractor in New England and I like the simple way you explained lenders. I’m a little set back when there are those that try to make something out of what has been said with a different twist. A little back ground on me; First Mortgage Financing, Construction Financing, Off-Shore Bank and International Financing, Now as far as the SEC is concerned, here’s my take for the industries watch-dogs. They are owned dogs for WALL STREET (the Crooks of modern financing) there the one’s that let WALL STREET run a way with the market and deregulated all the rules and then didn’t know what to do after the collapse. Folks keep it simple or Kiss, Daniil is right find your family, friends and neighbors someone you already know.
Keep it up Daniil,
O and Hugh, I’ll be keeping and EYE on you my good man!
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Daniil
Thanks for your feedback/compliments, Von!
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James
Mr. Kleyman:
A wonderfully written, very informative article. Sharing your expertise is highly appreciated. I have purchased your Rehab Evaluator Software, unfortunately, have not had the opportunity to use it yet. I have a question that I would appreciate your comment or suggestion. Would you/do you suggest placing insurance on a property that you are rehabbing? If so, do you have any companies that you could recommend that is licensed in the state of Tennessee.
Thanks,-
Daniil
James – I usually do ensure the properties that I rehab. There are various ensurance policies you can get for vacant properties undergoing renovation and costs will vary based on level of protection you get. I typically just insure myself against “disaster”, liability in case others get injured on my properties, and a certain amount of theft. But you can get more comprehensive insurance if you’re willing to pay for it. No idea about Tennessee. I recommend finding a good insurance broker in your town who can go out to many different carriers and shop around for the right kind of insurance policy for you
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Hey Daniil,
Very imformative blog yet you must know people will continue to ask for your recommendation of private lenders and such, lol. Keep the good information coming. We’re glad to have you.
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Daniil
Thanks, Mary! Yep, I have a feeling I’ll continue to get those requests but I’ll just point them to this blog from now on 🙂
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colleen McDaniel
Hi there! Great sight. Here is my problem, all info appreciated. I bought a place using my own money! First wrong step, then came the work. I’m still not done I have 157,000 into it but had bad freeze so had to redo alot. I’m broke sick of even looking at this place need money to finish. I’m still a head . But time wise way behind. Any buyers? Thanks Colleen
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Appreciate this post. Will try it out.
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Mohamed nur
Thanks much.i learned a lot even though I had been a realtor over 10years.and I,m tired of Guru lies.
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Thanks for the info.
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Donna
Thank YOU for the best explanation of the financial processes. I have to admit I had totally wrong idea about private lenders. I tough that if you go to special sites like mousetrap etc their lists are alignment. Thanks for honest picture.
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Daniil
Lots of people have those misconceptions, Donna. That’s why I really felt strongly that this was needed to be written down
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destinee
I’ve come across a lender group with various lending practices and programs. If they offer or accept your deal which they claim as “only if it makes sense” and that’s to “protect you if you don’t know how to recognize a good deal but a bad deal”. One product they offer is a lease back where they use their business credit cuz I have none. Im responsible for the mortgage in their name and I can 1) refined elsewhere after 24 mos or assume the loan and they exit after 12 consecutive pymts both for ordinal loan/ purchase amount. They want 15% of loan price which can be added to original loan. I’m responsible for appraisal etc.
Good deal or bad deal? Or should I research joint venture and see which way to execute???
Does this sound-
Jacob
First let me say that I’m not a financial expert. Also, without seeing all of the fine print it’s impossible to say 100% that this would or wouldn’t be a good deal. However, if you do not have credit, and you have the profit margin built into the deal where you can afford 15% and still make some money then go for it. However, be VERY cautious about all of the terms. Know what kind of loan you would be assuming, know what the payments would be, etc. Make sure you can afford it and be very clear about what happens if you’re unable to meet the terms.
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vince pizzo
Good job,informative and explained well,Thanks Vince
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Shola Coker
Thanks a lot for explaining…you’re right a lot of hard money lenders present themselves as private money lenders. I’m working with a private lender now and the deal is awesome, even split! Tried “hard money” and they want like you said some skin in the game. My challenge now is meeting more private money lenders since the one I have now cannot fund all the deals I come across, nut thanks for the tips I can now start to talk to more people I already have a relationship with.
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Terrance
Great job!!! Very simple and informative. Will pass on. Thanks!
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Nailah
Thank you for clearing this up. I had it all wrong. No wonder when ib searched for private money lenders my search was convoluted. Thank you
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Daniil
Glad I could clear it up, Nailah!
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Good stuff!
There was a 10 deal cap on lenders that has been changed to 20 for any loans backed by feds. -
Daniil,
This blog was excellent….clear, comprehensive, and very much to the point.
I intend to forward it to my agents, to round out their understanding of a complex and very misunderstood topic!-
Daniil
Sounds good, Dennis! Forward it away! 🙂
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Denis
Daniil, I have been in the RE industry since 1971 and your above advise is right on target.
I am a premium RV and learning to use it more effectively.
Great job!!!
Denis
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Daniil
Thanks, Denis! 1971 – you’ve seen every market cycle imaginable, twice! That kind of experience can’t be bought
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Daphne Hall
Great information!!!!!
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Adam Bailey
Awsome, thanks to all your hard work (and some of my own) I have procured 2 different types of financing options and have been confidently making offers. The information you provide along with the software is invaluable. One day in the relatively near future when I am supremely successful I will thank you in person. From the bottom of my heart thank you and keep it coming. And thanks for sifting through all the crap and as the kids say keeping it real. Sincerely Adam Bailey.
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Daniil, as usual your article, is impeccable, with a lot of meat on the platter. I find nuggets, of important, Information, that I can right now.
572.450.6096
Thomas Parker Gist Jr.-
Daniil
Thanks, Thomas! Glad to hear it!
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Benjamin Cook
The software is an excellent Realestate tool for investor and wholesaler excellent…
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JacobC
Hi Benjamin,
Thanks! We’ve put a lot of work into it and we’re very proud of what we created. Glad we could be a small part of your success. If you ever have suggestions or questions please let us know.
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jacinth
Although I just start working with a private lender, I do valuable this information. I met this private at a elderly scrabble club that we both go to every week. Thank daniel for such valuable info.
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WINSTON HENRY
Mr. Kleyman:
Please help me to get information about private lenders who will/could finance the purchase of land and the construction of residential properties/homes for sale. I would like to get help with this type of financing to help me to strengthen a dealership. If I can find lenders who would not charge me anything for six months after construction to allow me to sell, that would be very good. I may be asking too much, but I would like to know if something like this is possible. Please call me XXX-XXX-XXXX (h) or XXX-XXX-XXXX (c).
Thanks,
Winston Henry-
JacobC
Hi Winston,
True private lenders are not professional lenders. Meaning they’re not going to be advertising and probably won’t show up on a list. You need to put together a proposal and start shopping it around. Give it to people in local REI groups. Ask around for local investors. Chances are you already know someone who would be willing to fund your deal if it’s a good deal.
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Valerie Coleman
You are giving good knowledge about the difference in private money. I already understand the difference. Private money is the way.
Thanks for educating all real estate investor -
Daniil, terrific and invaluable presentation about private lending and the misconceptions surrounding the topic. The importance of working within state and federal rules and regs cannot be understated if you’re talking to private lenders beyond your immediate circle of friends and family. An understanding of local/federal security laws is critical as the penalties can be extremely punitive. There are a number of experts on the topic, including Alan Cowgill, with whom I recently met in a seminar devoted exclusively to the topic of an unlimited amount of private funds for real estate deals, and it was an eye opener! I’d advise anyone interested in building a serious real estate investment business to aggressively seek out the advice of professionals in the private financing field to insure that you are not in violation of security laws. This is especially critical if advertising for funding or you’re planning to conduct marketing meetings with potential investors. Bill
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Daniil
Right on!
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Philip Burkhardt
Great information, thank you!!
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Thank you Daniil.
I am just starting out in multifamily investments and find your blog so interesting and informative. I have been procrastinating over the four months because I was scared to look for or approach individuals with private money. I did not have the mindset that I am in the business of offering investment opportunities as opposed to asking for money to invest.
Laxley Rodney
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Daniil
That mindset shift makes a huge difference, Laxley! Glad you found this post!
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Anne Nevin
Thank you so much!!
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Larry Killmer
I would just like to add that the Industry is also saturated with scammers who present themselves as the Private Lender but require a boat load of money upfront to lend on the deal and after the Investor turns the money over to the Private Lender he is no where to be found. The information that you share about developing a relationship with your Lender will also protect you from falling into this. There are tons of people that know that you are desperate for the money and they are willing to tell you what you want to hear slightly cheaper but paid upfront. BANG you have just been had!
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Manny
Thank You Daniil,
Your insight and thoroughness is what makes your material empowering to us all.
Manny
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Maritza Acevedo
On credibility kit how can I have fotos of my work if I just stating in my business, and how can I have comments of other investor too?
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Daniil
Instead of photos of your projects, post “Sample Project” photos. I talk about it here: https://rehabvaluator.com/private-money/how-to-build-credibility-kit-2/
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I always appreciate what you have to share with us. Even though I have been in the real estate business for 40 years, I learn more from you then anyone I look to for advice. Thank you for telling us just how it is and sharing your personal experiences. We have been investing for over 2 years and this is our first loss, Though a significant one for us we are not willing to give up. We still believe that at this time, under our circumstances, this is the best business for us. Thank you for all your help.
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Daniil
Sorry to hear about your loss, Fran! But don’t let that discourage you. Learn from it and keep moving!
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Troy Butler
Thanks Daniil for writing this. I am a Carpenter of to many years, I always wanted to do this bought the books, cds, I even have the shirt, but I always like the way you communicate with people which is rare. I am inundated daily with emails with the next best thing . I turn them down, I live in Alaska and everyone of them has said no to me because I am in Alaska, so I am keeping your Premium program and I’m following your lead . I will have to find my own PRIVATE INVESTORS and make my dreams a reality. Again I thank you
Troy-
Daniil
Appreciate the kind words, Troy! Keep moving forward. Many “yes”‘s come after hundreds of “no’s” so don’t give up on finding people to partner with!
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thanks Daniil for the presentation today I read it and got a beater understanding of my position in my business, it’s just hard for me at this time to follow though due to I have a lot going on in my personal life right now. I have been following you and Jim sense 2014 and I am now ready to focus more so I thank you and Jim again. PS I would like to hear from you ASAP to take about the 14 day
tail I purchased late week and I am not sure here it is now. thanks again hope to hear from you soon.-
JacobC
Hi Ms. Garrett,
Thanks! Glad we could help. I see you also emailed us about your question. I’ll reply to that momentarily. 🙂
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Terry Nance
Daniil,
Thank you for article regarding private lenders.
I’m seriously considering becoming a hard money lender for spec construction loans for manufactured homes, as I have a developer client for this product.
I will be using rehab valuator in my offering packageTerry Nance
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Carol Weaver
Thanks great information, clarified the differences
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John howes
Great article we have done it all for years
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King Connally-Bey
You are definitely on Point and telling the TRUTH, continue to be a TRUTH DEALER!
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D.
I am much more educated to the art of money.
Thank you. I was contacted by sprout a network banking institution who was suppose to work with me since I am a member of the network regardless of my financial conditions; but the system found away to single me out and turn me down, they used my married name to run my credit report and said I didn’t have enough lines to meet the standARD FOR SERVICE. SO WHO DOES THAT it is more than evident that my real score was processing under my credentials I use everyday since the incomplete report flashed on the screen while processing. So please be advised that being a member of someones network is not always a sure thing either. -
James L Rue
You was correct, This has been more information than I ever got from paying money for the classes and weekends I have spent learning how to get started. Thank you for the time you spent doing this, it is priceless for me and my future.
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JacobC
Hi James,
We’re glad to have you! If you ever have any questions please let us know.
Thanks!
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Elamin Kariem
I really want to thank you for your time and efforts to assist so many people by re-educating us on how to truly get ahead. The information you provide for free is so full of wealth, its like money growing on trees. I also enjoy the comments offered by others, they allow me to tap into the minds and ideas of other people with similar issues. Again, i really want to thank you for your time and efforts to help me grow my business and my wealth.
Thank You,
Elamin Rasul Kariem-
StefanieK
Hi Elamin,
You’re welcome! Please let us know if you ever have any questions about the content.
Thanks!
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Kudos to you Daniil! You’ve provided a simply stated synopsis of private money lending for those of us looking to get involved in an ethical and profitable way. Thank You.
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Daniil, I am a new investor, not one deal yet; because of you I am already feel capable to start my first deal.Great job!
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JacobC
Hi Frantz,
That’s awesome! If you have any questions please let us know. We’re happy to help.
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WOW! What an eye-opener this is. This is impressive work and definitely worthy of my sharing it out.
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This is a great article! Very informative.
I am an investor in St. Louis MO for years and I am looking for private money partners for my deals. -
Fazalur Rahman
Hey, Daniil
This is me! Rahman.
It is very very informative article and helpful tool for our industry of our Real Estate Investors.
Hey, man awesome and amazing knowledge and interviews with Ms. Jillian. I just want to say thank you so much for sharing this kind of information and I enjoyed a lots during this conversation.
Thanks again and keep it up!
Fazalur Rahman
Brooklyn, New York
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Dylan Hampson
Hi Rahman,
Thanks for the awesome feedback! We are so glad you are happy with everything! Please reach out if you ever need assistance with anything!
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Jeff Holmes
Yeah Thank you
Been networking
Did all that
The skin in the game I guess One has to come up with the 15k.
That’s cool.All this flip houses with other people money no credit checks
Only need a deal that’s profitable is Truly B’S.OK I get it.
Just as I thought PML IS A FAIRY TALE.
I do not know of any person that is willing to do what you have said.
Trust me I have tried for years now.I have flipped 4 house in the last 2 years
The LENDER made money the realtor made money the contractors made money
The staggers made money.
Everybody made money except pt me I have lost 200k dollars.
My home my wife all of it.I guess it only works for those who know the right ‘recipe.
I am convinced that all the gurus are just laughing at guys like me.I was hoping to be one of those success stories I read about even on this site.
I am going back to trucking.
Tried and lost 4 different times.Thank you for your help.
But After 4 years this is obviously not for me
Take care.
I hope others fare well with you.
God Bless you -
As a REI, what type of insurance should you obtain for new construction flips. Plus there is a lot of info on how to obtain private money. But I can’t find info on the formalities of returning the loan and agreed profits ie;tax forms. Need info on the whole picture not just the front end.
And as always your info is very detailed…and as we know the devil is in the details!!
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Daniil Kleyman
Emily – I always take out 2 insurance policies: Builders Risk, which protects the structure itself. And a separate liability policy. I suggest you find a good local insurance broker that understands real estate and construction. They can shop around for policies and make sure you have adequate coverage!
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Lorraine Brown
Very good information especially regarding SEC regulations and how to circumvent legalities. I feel the secret regarding real estate investing, more than money which is also important, is finding investors who are willing to work with you.
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Rafik Labib
Sharing wealth of knowledge in a simple way for others not only to understand, but to succeed and prosper in this area of complicated real estate finances.
Thanks for such a great article! -
Hi Daniil. This article was informative and helpful. I was looking
for some information from you on contractors, I heard that contactors
are better cash buyers to flip your contract to rather than to a cash
buyer or private investor.Is there a difference between “a Contractor vs a Hard money Lender”?
Are they one and the same?
Thank you
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Ray Bahng
Hi Don, that’s a great question! You may find that type of specific information is better answered in the Facebook group (your membership to Inner Circle). Please feel free to reach out to Daniil in the Facebook group (and not in the comments section on this resource page). We appreciate your engagement and willingness to get more information. Look forward to your question posted in the Inner Circle mentorship group!
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Stephen Rosini
Thank you very honest and to the point, one of the best information guides I need to realize that I have to find my lenders and present who I am and that I earned their trust to lend with me. Great lead ideas.
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Daniil Kleyman
You’re welcome, Stephen!
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Every weekend i used to pay a quick visit this website, for the reason that i want enjoyment, since this this web page conations actually nice funny information too.
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Rafael Diaz
Hi Sima,
That’s great to hear! We’re glad you’re enjoying our content!
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i been trying for 5 years to get a steady line of funding, thanks for the tips, im looking for a hml that i can build with until i get a pml.
I KNOW HOW HARD MONEY OR PRIVATE LENDERS ARE AND TRUST ME IM NOT SCARED OF ANY OF THEM! I DO NEED A LIST OF THEM!#