Lending private money

I’ve been reading these forums with great interest and have a question about lending my own money to investors/rehabbers so they can fix and flip properties.

Assuming clear title with 1st lien position and an ARV of 60-65% what would you consider to be the biggest risk in doing this kind of lending? Being a private B2B lender in Colorado, as in most states, carries few if any regs such as interest rate caps, licenses etc.

Colorado has a 75 day redemtion period after foreclosure - so it doesn’t take forever to recoup your investment. Although I’ve heard that the borrower can declare bankruptcy during the redemption period thus dragging things out. Thanks in advance for any thoughts that you can share.

Howdy MarkCo:

I believe the biggest fear is getting started with a bang and then the rehabber getting slowed down and eventually stopping all together and you getting it back half done and having to finish the project yourself and especially if you have little rehab experience. My lender also makes sure I have enough money to do the rehab. Just now on my 31 unit deal I was forced to borrow more than I wanted and am now glad i did. Cost overruns will eat you alive fast as I have proven time and time again. Keep close tabs on the progression of the rehab and do not let them get draws for work until the work is done. This sounds simple enough but my inspector tells tales of rehabbers always trying to ask for more than has been done or wanting paid for sloppy work that needs to be redone.

Hope this helps

Hi Tedjr,

Thank you for the advice. It is very helpful.