This Article On The Business Of Private Money Lending To Real Estate Investors
When being in the private money lending business as a private money lender, you need to know that your broker is as good an underwriter as Sherlock Holmes is a detective; well not just any detective, but the best detective in the world.
- As a private lender, you need to have super-sleuth skills
- You need to be able to see through the minuscule details that could cause a loan to go sideways or into default
- If caught early on, you can avoid investing in the wrong opportunity
- This, of course, depends on your risk tolerance
- If you’re fine with lending on construction projects (which are very high risk)
- Then you will know eventually how to vet them properly and put the right security measure in place to mitigate the amount of risk you actually have to take on
- If you don’t, you stand to lose a bit more than just your investment. You could lose a lot more
In this article, we will discuss and cover The Business Of Private Money Lending To Real Estate Investors.
Sherlock Holmes Is Like Our Private Money Lending Underwriters
Sherlock Holmes was well known for seeing things that most ordinary citizens would miss. It was interesting to watch how he used deductive reasoning many times to figure out minor details. This would of course bring him to theories that he and Watson could investigate together or separately and then regroup to come to a final finding. This usually led to the arrest of a criminal. That said, this can easily transmute into the world of private lending and for you, a private investor.
When someone comes to you the first thing you will almost assuredly hear is, “I have a KILLER deal for you!” This you of course just let it roll off your back as water does off a mallard duck. Then you begin to really listen to the “story” the tell you. In that story, all sorts of clues will be offered to tell you that this indeed is a great opportunity to invest in. However, it is up to you to truly know what the property is truly worth, the stability of the borrower and their ability to repay the loan ON TIME, and the ability to finish their exit strategy. Seems simple yes? Not so.
Risk Assessment Is Key In Private Money Lending
There are many times where fraud can occur if you’re not careful. In my first year as a private lender, I remember learning almost the hard way that if you don’t ask enough questions that you could indeed be “strung along” in the attempt to get you to lend on an opportunity. IT can come in the guise of a “Gap Funder”, and bridge loan or seller carry situation. In the mind of a broker or seasoned private lender, a 2nd isn’t entirely enforceable, and if the seller merely inflates the price of the property in order to entice you to lend on their opportunity, the 2nd is in fact MUTE. You have just financed 100% of the purchase price and in some cases the repair as well. It happens.
However, with the right practice, you can begin to tell when someone is being honest or unscrupulous in their dealings. (yes I’m doing this with Oxford English, I figured you’d like to think you were reading Sherlock Holmes words himself as he would give advice) This comes with time or knowing that your broker or brokerage is doing more than enough to vet opportunities before bringing them to you. Then you have the peace of mind needed to feel comfortable lending on any particular opportunity.
Hard Money
Investigative abilities are good at Gustan Cho Associates. We have a combined experience of 95+ years. You can rest assured we have already caught and called borrowers on the carpet for trying to finagle their way into a loan without having to put skin in the game.
We enjoy the fact that creative financing exists. However, we are also astute to the fact that there are those out there looking for a free ride and will not allow it. We’ve got to the closing table and stopped loans from happening because it is you our Private Investors that we want to protect first. Then the borrowers provided they’ve been honest. Let’s face it we’re all in this to earn a living, we can do it honestly. Learning how to be a super Sleuth like Sherlock Holmes will help you keep a clean portfolio of loans, OR, you can work with us at HMCG and relax knowing we have the experience to investigate a “deal” well enough that when the opportunity comes to you, it’s as safe as it can be.
To find out how to work with us as a private lender contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
