How to Find Private Lenders for Real Estate

How to Find Private Lenders for Real Estate

What is a private lender, and how do you find private lenders for real estate? Get answers to these questions and more in this video tutorial.

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VIDEO TRANSCRIPTION:

Step 1: Understand the basics. Do so by knowing the in’s and out’s of your deal and preparing to answer any questions your lender may have. Many private lenders have first hand investing experience, so they will know how to judge if your deal is worth their investment. The most common questions a private lender will ask include: “When will I get my money back?” “What is the projected timeline of the deal?” “What is the incentive to invest?” “What are the risks involved?” “How will you secure my investment?” “What is your deal’s ARV, or after repair value?” and “What is your exit strategy?”
You’re more than likely to establish a positive relationship with a private lender if you’ve prepared accordingly.

Step 2: Build your network. To do so, get to know professionals in your industry, including real estate agents, other investors, title companies, attorneys, contractors and more! Keep in mind that many private lenders will come from referrals within your own real estate network, so always have a business card on hand!

It’s also a good idea to build your network with people outside of the real estate industry. This includes anyone looking for new opportunities, like colleagues, family and friends who might also have valuable connections outside of your existing network.

Step 3: Prepare the materials for your pitch! This should include a company overview that covers your education, goals, past deals and experience, and what makes you the right investor for the lender’s funds.

You should also prepare a presentation that specifically outlines the success of your previous properties. Be sure to include before and after pictures — when necessary — specific costs and profit numbers and other relevant information. Highlight the properties that show off your best work and include important documents — like the promissory note and insurance papers. Lastly, be ready to explain how long the process will take, when the lender can expect to see the loan returned in full, and what happens if your deal involves multiple investors. Including all of this will ensure you are prepared for any questions that come your way during the pitch.

Step 4: Select the private lender that’s right for you. Although you will spend time trying to impress multiple potential investors, you ultimately want to choose one who will serve your needs as well. Ask each lender about their proposed loan terms and interest rates to find out how long you will have to pay back the loan as well as how quickly it will accrue interest. Find out if the private lender prefers to make the loan based on the property’s current value, or after-repair value. Also inquire about any potential fees they will charge and whether those fees will be upfront or in the form of penalties. Finally, ask about the lender’s schedule of dispersing their funds to you. Remember, gathering this information will help you choose the private loan with the least amount of risk.

Step 5: Make the pitch. Your pitch should be detailed in explaining the numbers and costs involved in the deal as well as going over your plan for the property. But your number one goal should be to put your potential partner at ease and make sure you’re both on the same page to finalize the deal. Go into your initial pitch meeting focused on educating the lender about the process, answering questions about profit splits and reviewing timelines. Be confident when explaining your goals because the more you can put a private lender at ease, the more likely you are to secure private financing.

The process of finding private lenders is easier than it seems, especially when you follow these tips. Remember that making strong connections and maintaining positive relationships with each private lender you work with will help you secure capital for both your current and future investments. The best investors always have options when it comes time to financing a deal.