I hope all is well. I am seeking advice on how to start HML/Private lending I am looking to get a better return on my savings. I'm a small fish and will only be able to fund a few deals per year, but it's a start. Any help or general advice will be appreciated. Thanks and take care.
Here are a few questions that came to mind:
What are your criteria for the property?
Is owner occupied or investor owned preferred?
What kind of “skin in the game” do you require from the borrower?
What are your terms?
Rates, points, fees?
Do you do rehab money as well?
Can you recommend any books to read on the topic or any other sources of information?
I like to do cashout refinances on FREE AND CLEAR PROPERTIES…
I also fund purchases when the borrower has %50 or better of CASH to put in.And dont listen to the BS that the borrower is aquiring the property deeply discounted and they expect you to put up your money and their money is in the form on inbedded equity …That is BS…Its WOOD on the table or they can go somewhere else…I could care less if they get the property for cheap,I want REAL SKIN IN THE GAME…AMERICAN CURRENCY ONLY…I DO NOT lend on ARV EVER…I NEVER lend in war zone neighborhoods…NEVER…I NEVER lend over %50 LTV…Terms are the usual for HM…%12.99-%14.99 +3- 5 points…This is the norm in the industry…The borrowers will cry and moan but they know the truth…Everyone is looking for an Angel Investor, aka sucker…I DO NOT do rehab funding…I cant babysit projects to insure that the contractor/builder is doing the right thing with my funds…Builders/contractors are the highest risk imo…But if you are knowledgeable like fdjake and can be around the project to monitor it then it may be an option…But I do not do it…
Books…I listed a bunch in the past…Go to amazon and search under Trust Deed Investing and a few will come up…I read both books from Matt Tabiacchi (sp?)…Very good books …
Also make sure that who you lend to has a realistic exit strategy…Refinancing into a conventional mortgage is NOT a realistic exit strategy…Selling or foreclosing is your only real option nowadays…The strongest borrowers cannot obtain financing in these times…And dont listen to the BS a borrower will tell you that they are doing a short term HML to have time to build their credit up to go conventional…TOTAL BS…You have to be comfortable with the notion that you are participating in a loan to own…If you understand this from the jump you will be ok…The rate of default on my loans is %20 and the rest either refinance through me or deed the property over to me…You have to create every loan as if its going to NOT be paid back…Dont expect to earn %15-%20 on your money without some aggravation…I cant emphasise this point more…BACKGROUND CHECKS…BACKGROUND CHECKS…BACKGROUND CHECKS…Know who you are lending to …Do a criminal background check…Get to know the title history on the property you are lending against…Use lawyers NOT TITLE companies…Use a reputable attorney or law firm that specializes in NOTE and MORTGAGE orginantion and the HM Business and all that it entails…BEFORE you fund a HML consult with your attorney about how long it will take him/her to foreclose and retrieve the property…Never never never fund an owner occuppied home…Only investment properties or NON Owner Occuppied or Commercial…
You also need sufficient amount of money to properly do deals…The lower priced deals mean undesireable areas…I dont know how much you are starting with but if its not alot maybe you can consider a company like Sterling Pacific to invest in trust deeds…Do your due diligence first…
Thank you so much for the response. You’ve given me a lot to consider and have definitely prevented me from making some mistakes. I think I have enough money to get started but I will PM you the details. Thanks again.
You may also want to invest your money with an established private lender. Your risk is mitigated and returns are more secure. I can send you a connection if you or anyone would like. Message me if interested.