five steps to becoming a private money lender | law fundix llc

Jumpstarting Your Private Money Lending: 5 Steps to Start Today

Here are five simple steps that will walk you through and help get you init or out as a personal money lender. These steps can guide you whether you are an active investor in need and private money lenders or a passive real estate investor looking to work with those who already have the right connections. But anyways, make sure to subscribe and hit the notification bell on my YouTube channel ENABLE ALL NOTIFICATIONS so you are always one of viewers when I post new content. So without further ado, let's jump right in to these five crucial steps.

five steps to becoming a private money lender | law fundix llc

Private Money Lender Explained

So what is private money lender in the first place, let me explain it to you. Private Money LenderA private money lender is an individual, most likely NOT a bank or lending institution that may have private funds available to invest in real estate deals. The individual aspect here is important... While it may be an individual lending money via a LLC, the entity that you as a borrower are engaging with remains solely….well -an ‘individual’, not some faceless corporate loaning machine of possible hard $ origin. The capital normally invested by private money lenders is often parking in such financial instruments as checking accounts, savings accounts, retirement funds and money market fund(s) or even cash flow derived from a business.

So we have a investors seeking transaction here where the active real estate investor is funding with passive funds though private money lending. Yet again, this is a deal-by-deal transactional relationship — not the same as syndication or crowdfunding where you are working with each of the individual lenders and therefor do no need any SEC documents or legal complexities. So let's dissect the 5 steps to getting started as a private money lender.

Step 1: Knowledge

Step number one is knowledge. Both in case one is an active investor sourcing lenders or if they are a passive investors who want to know more about lending, it should be understood very well starting from the beginning. As the active investor it is his or her fiduciary duty to tell prospective lenders what they are getting themselves into. A confused mind always says No so it is a must to explain and educate the potential lender in every possible manner from entry till exit.

Step 2: Relationship Building

Second is relationship. You do business with people you know, like and trust. This is no different in private money lending. You must know like and trust your active investor or if you are the lender your client be it a buyer, seller landlord or rehab follow provided information You want lenders who act like the passive investors they are instead of needy, overbearing controlling high-maintenance types.

Step 3: Criteria Setup

Third step is to configure the criteria. Those are questions you need to ask so that you can know what type of private money lender they might be. These include:

• When are you ready to invest?
• How Much Would You Like To Invest?
• How long do you like the hold?

Comparison shopping like this will give you a good idea of whether the lender fits your type of deals. For example, if a lender only does short-term fix/flip deals and you are working on a long term buy & hold deal, they may not be the right fit for that specific project.

If I did want to do this then what paperwork would I need?

Step 4: The Paperwork Qualifier

With a lender and a deal that now made sense, comes the “paperwork”, next step. The main two docs that need to be drafted are the promissory note and deed of trust. Most of the time, it will be the active investor who is responsible for making up drafts of such documents. The lender and closing attorney then reviews these drafts. These should all be legally binding and acceptable to both parties BEFORE you go further.

Step 5: Ensure Delivery

And lastly, delivery is important — very more so on the lender. I mean, you are an active investor and your private money lender is expected to be prepared (and willing) to wire funds when necessary. If they cannot, then it can all fall apart. Therefore, you need to make it clear from the get-go that people must provide their submissions at a specified time and date or else be prepared to scratch those who don't deliver in due time off your list.