Four Problems with a Private Money Lender

Yes, we know, it sounds kind of silly to be a private money lender yet tell our clients to avoid private money lenders. Right? Well, we know how we do business. But, we also know we aren’t the only private money lender.

Just like in any business, there are companies who’s reputation means everything to them. And there are other companies who want ever last one of your nickels and dimes.

At CEB Capital, we want to ensure that even if you don’t decide to work with us, you are still educated when choosing a private money lender.

So, read these red flags before you apply:

  1. Upfront fees: This is very tricky and the biggest way “lenders” rip-off potential clients. There are lenders out there that will charge fees for everything under the sun. You may even have to pay before approval. That means there’s a chance you pay big and still don’t get funded. Try to look for lenders who’s fees are part of the loan so you ensure you’re getting funded before you’re paying the private money lender.
  2. Sky high rates: Sure, 100% financing sounds glorious. Who wouldn’t want to buy a house, remodel it and sell it without a dime out of their own pocket? But, you would ultimately want to walk away with more dimes in your pocket, right? A lot of lenders charge astronomical fees in order to finance 100% of your project. Then your bottom line profits are eaten away into nothing. This means you’re working to flip a home for weeks or months and walking away with no profits. I’m sure this is not why you’re in the fix and flip business.
  3. No follow-up: Things move very quickly in the real estate industry. When you’re talking closing dates, appraisal appointments and proof of funds letters you need to know you can count on your lender to communicate a timeline with you. If you’re working with a company that doesn’t return your calls or give you a timeline, you need to cut ties. Time is money and you don’t have the luxury to hurry up and wait.
  4. No help. First of all, a private money lender only wants  to work with experienced investors. They don’t want to “waste their time” with newbie investors. They definitely don’t want to spend their valuable time teaching inexperienced flippers the tricks of the trade. Make sure, experienced or not, that you work with a company that takes the time to get to know everything. This will help all of you be successful.

2 thoughts on “Four Problems with a Private Money Lender”

  1. I have bought foreclosures, mainly through auctions, either live or online. I now have 3 as residential rental properties and one great profitable commercial rental that I rent for $5065 monthly on a triple net lease so I am not out any for maintenance, insurance or property tax, I just get my rent every month. I can buy foreclosures at the courthouse steps for about 60% of the appraised market value of the house. I like getting houses for around $100,000 at the auction that don’t require a lot of rehab, maybe $15 to 20,000. They are usually worth between $175,000 to $199,000 when I get through with the project. My problem is I have to have the winning bid for around the $100,000 the same day at the courthouse. That means usually only a drive by appraisal can be done. I am in a bursting housing market in Gulf Shores/Foley, Alabama. With this method I use, is there any way you guys might help me in funding a foreclosure purchase? If I find one online, sometimes they give me a week to get the funds to them at the most. Hope to hear from you. Thanks, Dan

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