Confessions of a Private Lender Part 1
I Have A Few Confessions To Share.
I am a private lender, have been for nearly 8 years. I am not wealthy. The first deal I
funded was for $50,000. That may seem like a lot of money, but I assure you, if you
follow a real estate investing plan you may soon find yourself in control of considerably
more than that. I don’t care who you are, you probably come into contact with many
people every day who have $50,000 and many of them will be happy to lend to you if
you find an appropriate deal and present it correctly. Really.
Why Do I Lend?
The easy answer is to earn a good return on my money. On that first $50,000 deal I
earned $920, ~1.8%. The original loan plus the interest was paid back in 32 days, an
annualized return of nearly 21%– definitely a good return. This return was earned in my
Self Directed IRA (SDIRA). My SDIRA is a Roth IRA. This means that my return was
not taxable—a considerable advantage. You know people who have IRAs and though
they may not have them structured as Self Directed IRAs, it is very easy to convert an
IRA to a Self Directed IRA. If you help someone learn how to do this they will need to
find vehicles to invest in. They may be open to investing with you.
I am also a real estate investor and lending makes me a much better investor. My real
estate portfolio has contained single family homes, multi-family property and vacant
land. I have done rehabs to sell and rehabs to hold for rental income, purchased REOs
and short sales. I have been involved in a couple new home construction projects. I have
also funded short sales and REO purchases. I hold land contracts on homes that I have
sold to landlords. I like exploring new avenues and different deal structures Some of my
partners (borrowers) are flippers, some buy and hold. The more techniques I learn, the
better able I become at recognizing deals and crafting terms that fit my partner’s needs.
Lending allows me to participate in diverse deals and to refine my skills.
Real estate investing is a rapidly evolving field. Regulations, building codes, lending
guidelines, and housing outlook are all in an almost constant state of flux. It helps to be
in the market to keep up with the changes. With my deals and my partners’ deals I am
always in the market. My partners have introduced me to some novel ways to profit from
opportunities that I may not have seen as clearly or as quickly on my own. My partners
share many details of their business models with me. Most are very good models or I
would not have partnered with them—some are excellent. I have participated in dozens
more deals with my partners than I would have by myself. I gain insight into improving
my business and instead of paying to attend a seminar, I get paid. This is my favorite
way of learning.
I was pleased to be invited to contribute to this redesigned site. This is the first entry in
what I hope will be a long series of posts. Some of my posts may be familiar to some of
you as they were previously posted elsewhere. They have been updated, and/or rewritten
before they appeared here. There will be new posts, but it seems appropriate to retell
some of my stories to introduce myself to new visitors and reintroduce myself to some
old friends. If I touch on a subject that interests you and that you would like me to expand
on, or if you would like to suggest other topics, please leave a comment and let me know.
That may become the theme for a future blog or podcast. If you think I have missed the
mark completely, go ahead and tell me that also. You won’t make me cry and it may turn
into an interesting discussion. Please join the email list, follow on facebook, and add on twitter.
Oh, this reads even better on this site. I’m taking it upon myself to test the comments section.
I agree! Thanks for reading and testing the comments, Mark!
Great article Jeff! I’m looking forward to reading more. I would love to hear the story were you closed a deal in a liquor store with an EMD in silver eagles.
I’m a newbie reading it for the first time and love the content! Thanks for sharing! I look forward to having more time to chat at the next meeting.
Good read Jeff! I have always been interested in doing a little lending myself. What may be interesting and helpful to folks like me is if you wrote a post about a specific deal you funded that we could learn from, pitfalls to avoid, etc… Just a thought.
Grant, you already heard that story. Other than the location where we closed the deal and the silver eagles as a fee there wasn’t anything remarkable about that deal. Now, if the borrower would have paid off that loan in silver as I thought was going to happen, that would have been more interesting. I may be able to make a couple points with story. It may be worth writing up. Thanks.
Jen, there are a few of these in the queue already. I am working on some more. Thanks for stopping by.
Robert, as this series continues I will reference specific deals to discuss how I decide to fund deals and how I structure them when I decide to move forward. I will also discuss how I eliminate deals and investors from consideration, or how the borrowers eliminate themselves from consideration. Thanks for the input.
I’m looking to refinance out of a rehab loan into a longer nonrecourse mortgage for a 4-family in my SDIRA. I prefer a 20 to 30 year fixed rate loan, that we could specify a balloon period.
If you are looking to make a loan, hit me up at ….
Jeremy, I consider your comment spam but chose not to delete it as it may be instructive. I encourage you to read future posts. I hope they will show you how private lending is primarily about forming strong relationships. There will be several posts which may show you how your comment is a terrible way to seek private funding. I deleted your e-mail from your comment.
Good post. I wish there was a way to subscribe (unless I am missing it) so I don’t forget to check back in.
Thanks, Justin. I understand that there is no subscribe feature for my blog. You are able to sign up at the top of the page for a weekly email of what’s new.