Private Lenders: What they are and how to find them

Matt Teifke,June 20, 2022

Review,Of,Investment,Plans,And,Funds,For,The,Purchase,OfPrivate lenders can be funded by investors, banks or both. They use funds from inventors to provide business loans. 

Lenders expect to make a high return from the money they are lending. The interest they charge will vary depending on whether the money they were lending was sourced from a bank or an investor. They tend to charge higher interest on money sourced from a bank as more fees are involved. 

Your financial situation will also come into play into how much you are charged. For example, if you have a good credit score and make a decent income, the interest you are charged will be lower than it would be if you have a low credit score and income. 

Private lenders differ from bank loans in that they tend to charge higher interest. Banks can borrow money from the federal government at a low rate. Although they will charge lenders enough interest to make a profit, the interest will still be lower than a private lender. 

Like a private lender, the interest you are charged on a bank loan will vary depending on your credit score and income. 

 

Private Lenders and How to Find Them

I want to talk about how to find a private lenders. They’re everywhere. You can find them on Google. Just type in “hard money lender”. Those are private lenders. You can reach out to investors by going on local Facebook pages, talking to brokers, talking to agents. There’s a lot of people that are looking for deals.

So find who these people are and maybe they’re private lenders, or maybe they know private lenders, because most people that are flipping are utilizing hard money or private lenders. It’s so common because you get better terms, typically 10% down right now, 8.5% interest. You pay two points on the loan, have a one to two year term, but they’re quick.

It can get done in a week. We just got one done in 24 hours. Typically it takes two, three weeks, but the way to find people is to have as many conversations as you can, but even going deeper than that. Don’t just find them, get to know them. Find out what’s valuable for them. Give them leads, become a resource for them. Take them to lunch, take them to coffee.

Private lenders work at Dell computers, they work at Amazon, they work at Tesla. They’re everywhere. They don’t just have to be real estate lenders. They could lend out money for anything, and you’re getting an opportunity to find people that want to invest in that. Typically they’re gonna have their own forms that they want you to fill.

Everything’s then going to go through a title company. If you’re buying real estate and it’s going to be done by the book, you’re gonna get a title policy. The lender’s going to have a deed of trust. In Austin there’s probably off the top of my head, 10 big companies that lend money as hard money lenders, and there’s probably a thousand private lenders.

They’re not hard to find. Build the relationships, stay in touch with them, find out what they’re looking for and bring them deals. They also want to own real estate and maybe they don’t actually lend you the money, but they partner with you. Instead of you taking out a loan, split the profits with them, and everybody grows together.

I think it’s extremely valuable and I highly recommend having a good database, call it three to five, at least private lenders who know who you are. Find lenders who you can build rapport with, and who’ve seen you be in the game for a while. That way, when you do find that opportunity, they’re able to move quick.

You don’t want to just find the lender after you found the deal. In my opinion, they’re gonna want to get your documentation just like any traditional lender would, but there’s not as much underwriting. They do a BPO instead of a full appraisal. So they get a broker price opinion, and that will take two to maybe five days instead of two to three weeks right now.

And they’re able to just move so much quicker. That’s why I highly recommend doing this, build the list, stay in touch, add value for them and go find as many private lenders as you can.

 

Why Choose a Private Lender Over a Bank? 

Business,Business,Loans,Private,Lenders.,Business,Loans,Quick.,Loans,NoYou may be wondering, if a private lender charges a higher interest rate, why would I want to choose one over a bank? Well, there are several reasons why people find private lenders preferable. Here are some to consider:

Fewer Qualifications: Your income and credit score are not only considered in the interest charged on a loan, they are also considered in whether you will qualify for a loan at all. A bank may turn you down if you don’t have a high enough credit score or income. The same goes for a private lender, but a private lender will be open to accepting lower credit scores and income as compared to a bank.

Faster and Easier Loan Approvals: A bank will want to see extensive paperwork before approving you for a loan. It can take them weeks or even months to go through the paperwork dragging out the approval process. A private lender will not require as much paperwork shortening the approval time considerably.

Customizable Loans: Banks have rules and regulations that make their loans very cookie cutter. A private lender can work with you to create a customized loan based on your loan to value ratio, debt to income levels, credit score and other criteria. 

 

How to Use a Private Lender for a Real Estate Loan

Review,Of,Investment,Plans,And,Funds,For,The,Purchase,OfPrivate lenders can provide loans for a variety of purposes including real estate. Here are some ways you can use a private loan for your property. 

Buying a New Property: Private lenders can provide you the financing you need to get into a new property. They are advantageous in this scenario as they can get you the money quickly so you are able to jump on properties that just came on the market and make a last minute move if necessary. You can also use the equity in the property to make yourself more attractive as a borrower and lower interest rates. 

Refinancing a Property: Refinancing is an option many real estate owners take advantage of as it helps them access better interest rates and different repayment timelines. Private lenders can assist with this process possibly reducing refinancing costs as investors may be able to incentivize them with profit shares instead of loan repayments. They are also generally more flexible in working out refinancing agreements. 

 

How to Find Private Investors

Home,Loan,/,Reverse,Mortgage,Or,Transforming,Assets,Into,CashNow you know how private investors work, but the question is, where can you find one? It’s easy to find a bank to walk into and ask for a loan. But what about a private investor?

Private lenders aren’t hard to find. A simple internet or social media search will help you locate offices in your area. You may also ask friends and family as they will help you find a lender you can trust. 

But the question is, how do you find the lender that’s right for you? Here are some helpful tips.

Know the Different Type of Lenders

The first step is knowing the different types of lenders that are out there. This will help you make your search more targeted.  

A private lender can be someone who is not associated with a financial institution. They may simply be someone who is interested in your venture and willing to invest. 

There are also private lenders who are associated with traditional financial institutions but have standards that are not as strict as a bank’s. These are known as hard money lenders. 

Know What a Private Lender Wants to Know

Happy,Millennial,Couple,Listening,To,Male,Financial,Business,Advisor,,LawyerIt’s customary to meet with a private lender before striking a deal. At the meeting, the lender will want to know certain things about the investment. It’s important to have the information ready to meet their inquiries so you appear on top of your venture. 

Here are some common questions private lenders will want to know. 

  • Will they get their money back? How and how quickly?
  • What is the incentive to invest? A profit sharing deal could be added incentive. 
  • What are the risks involved? A borrower with a low credit score, low income and less experience in the business will be considered a higher risk. The property itself can also make the deal more or less attractive. 
  • How will the investment be secured?  Loans that are secured are protected by collateral. The lender will want to know what will be used as collateral if you default on the loan. In a real estate deal, collateral is often the property itself
  • Is your plan well-researched and achievable? The lender will want to see a clear and sensible business plan regarding what you want to do with the property.

Build a Network

Building a network is especially important if you are working with a private lender that is not associated with a financial institution. Your network should consist of industry professionals such as real estate agents, other investors, title companies and attorneys. The more hands you shake, the more professionals you’ll get referred to. 

Your network should also include people from outside the industry such as friends, family and colleagues. You never know what one of these people may be looking to jump into the industry by supporting one of your ventures. 

Once you create good relationships with the people in your network, you will find a lot of doors opening. 

Prepare Your PitchFriendly,Broker,Manager,Shake,Hands,With,Happy,Black,Married,Couple

After meeting with a few lenders, you’ll start to get a good idea of what they are looking for. This will help you get a pitch together that includes showing all the necessary materials and answering lender questions without a hitch. In fact, you may even want to create a video or PowerPoint presentation that lets lenders know what your project is about and addresses their concerns. 

Make sure you have all your documents prepared before going into lender meetings as well. In addition to wanting to see your financials and credit score, lenders will also be interested in insurance, documents and promissory notes. They will want to know when they will be repaid and what will happen if multiple investors jump into the ring. 

Find the Investor That’s Right for You

Borrowers often experience anxiety over whether they will be approved for a loan. But it’s important not to jump at the first lender that says yes. You want to make sure the lender is best suited to your needs. 

Experts recommend that you shop around before signing on the dotted line. Compare lenders based on their loan term, interest rates, fees, penalties and repayment schedules. Find out whether their loans are based on a property’s current value or after-repair value. A loan based on the after repair value will be bigger but it will also mean there’s more to pay off. 

 

Tips for Increasing the Likelihood of Getting Approved

Millennial,Diverse,Couple,Listening,To,Male,Banker,,Insurance,Manager,OrHaving all the necessary paperwork and the information a lender needs will make you seem like a more attractive borrower increasing your chances of getting approved. But there are some other strategies you can use to secure you loan. Here are some to consider integrating in your pitch. 

Hard Sell vs. Soft Sell

Unlike aggressive sales tactics that may turn off consumers, a professional private lender will not mind a hard sell. It will mean you are presenting all the information they require in a direct manner. And, because the lender should want the deal as much as the borrower, this approach should not discourage them. 

However, if you are dealing with a non-professional private lender, such as a colleague or family member, you should go for a soft-sell approach. You never want them to feel as if you are forcing them into a deal. Doing so can make them back out eventually and it can damage your relationship in the industry.

Attend Real Estate Investor Meet Ups

While searching for private lenders online, you may find out about real estate investor meetups. 

These are typically in-person events that make for great networking opportunities. They will connect you with investors and other real estate professionals. The personal touch, along with a pre-existing relationship, will increase your chances of a future approval. 

Cold Call

A cold call is a great precursor to a meeting with a lender. It involves gathering the names of private lenders and calling them, basically out of the blue, to tell them about your project. While you are not going to get approved during the cold call, it will warm up the atmosphere in the room when you make your pitch during a live meeting. 

Launch a Marketing Campaign

When attracting private lenders, you are selling your product. And what better way to boost sales then with a strong marketing campaign?

Your campaign can consist of creating targeted emails that detail your venture and sending them out to private investors you think may be interested. You can cast a wider net by setting up a yard sign on a property you are working on getting an investment for advertising that you are looking for lenders. 

 

What are Some Recommended Hard Money Lenders?

Here are a few hard money lenders that are recommended for real estate ventures: 

Kiavi: Kiavi is recommended due to its fast funding times, low closing costs, no hidden fees and no personal income qualifier. It provides up to $3 million in funding for 12 months in five to fifteen days. It’s a good choice for home flippers, and the more you flip in a year, the better your rates will be. 

Lima One Capital: Lima One offers a variety of lending options, including flipping options, fix to rent and various construction loans. Minimum credit scores range between 600 and 660. They offer loans up to $3 million and a $20 million max on a value-add bridge loan. 

Visio Lending: Visio is an ideal option for those looking to grow a rental portfolio. They offer a variety of lending products including single-rental loans, bridge loans and blanket loans for multiple properties. Debt to income ratios are not considered; qualifications are based on cash flow. 

RCN Capital: RCN is a good lending choice for investors with flipping and long-term rental experience. To qualify, you must have flipped at least two properties or acquired two long-term rentals within the past three years. The company can loan 90% to 100% of rental costs in as little as 10 days. 

CoreVest: CoreVest is an ideal lending option for investors looking to fund larger projects. Their blanket mortgage loan offers an LTV ratio of up to 75% and is available in terms of 5, 7 or 10 years. They also have a flip and fix credit line and revolving credit lines ranging from $1 to $50 million. 

A private lender can be a good option for those looking for a real estate loan. Now that you know how to find one and how to secure a loan, you are in good shape to move forward with your project. We wish you success in your venture. 

About the Author

Matt Teifke has touched every area of real estate. He is the Founder of Teifke Real Estate (TRE), TRE Homes property management, Longhorn Construction & Development and TRE Property Solutions. As the Principal Broker of TRE, he employs over 140 agents and staff. Matt also holds a Masters in Real Estate, Valuation, Analysis, Investment from Texas A&M University.

If you have questions about private lenders, please reach out to Matt here.

Last Updated: 6/21/2022

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