Getting private funds right now is relatively easy. The issue is that many wannabe investors take the time of private lenders and cloud the deal flow by not being prepared or not being qualified. Here is a very simple “How To” list. Once followed, you will be funded.
- NO ONE funds 100%- despite what they tell you. So have 10% down payment and closing costs ready.
- Be prepared to pay the deal makers (that’s us) one to two points. Not upfront. This goes into escrow and only if the deal closes. The lender may tack on more points. Usual is 3-5 points all together. If you don’t sign fee agreements or NCND (Non Compete, Non Disclosure)– we can’t do the deal.
- Have prepared all details on the property you want to buy, rehab or build. This is usually a very simple Executive Summary that includes financial details: purchase price, your down payment, rehab or build out costs, anticipated NOI or current NOI (Net Operating Income), market summary, and your profit. (Hint, they want to see profit!!!!)
- Have a one page or 1/2 page summary of your or your company’s experience.
- If you have an appraisal, include it and the LOI, the CMA, the ARV, etc.
- Make sure there is equity in the deal. If it’s not a good deal, don’t expect to be funded.
- DO NOT LIE, make things up, exaggerate, or fabricate. One of these and they close the deal down– no matter how small.
- Pay attention to the minimum. If the minimum is $500K, then don’t submit a $250K. It is easy to find funds over $1M. Difficult from $500K-$1M and almost impossible from $85K-$490K. Put together a portfolio or syndicate with other investors (we can help you do this).
- Promptly provide all papers, answer questions and phone calls. I cannot tell you how many deals just lay there unfinished because the client doesn’t answer a question fully. The lenders only ask once, then they go on to the next project. Time is always of the essence because lenders may have $1M for a project this month and if you don’t come back quickly they will give it to the project that does. Then they may not have the liquid funds for a few other months.
- Provide updates: competition for the property, more cash reserves, market changes, etc. etc.
- Do your own due diligence on the lender. Find out what the terms are before waiting your time.
What NOT to do:
- Do not pay upfront fees: to anyone: this includes appraisal fees, due diligence fees, administration fees, loan origination fees. You can pay these: after you have a commitment. For example: due diligence is expensive: so you do your own or you pay them– there should be a choice. You do not get an appraisal until there is a commitment. Loan origination fees should be part of closing fees.
- Do not lie about the 10% down. Get it first (or the promise for it), then go after your loan.
- Do not overwhelm with papers. Submit the above and wait for due diligence.
- Do not bypass your deal maker, broker, or agent by going direct to your potential lender unless the lender calls you.
Private funds often works for the average person who is buying real estate over $500K with only 10% down. Realtors can help clients also find private funding. If you have a residential or commercial client that needs purchase money plus rehab or build out costs, private lenders will fund the whole deal: as long as your client has 10% down plus closing costs. Since banks often want 20-30% down, and will not fund rehab or build out, private lending fills the gap between the bank and family funding. Often, I find that private funding is faster and easier than bank funding.
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