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What Private Lenders Really Want

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So you've heard about our Mogul deal funding network, right?

That’s right, we have a core group of folks within the Real Estate Mogul tribe who have raised their hands as being interested in possibly privately funding deals from fellow Moguls. It’s one of the ridiculously awesome benefits you enjoy as an insider here with us.

Here’s how it works:

  1. Whenever you submit a property within “Do Deals”, one of the questions you’re asked is whether or not you need funding.
  2. If you say yes, then your deal is emailed out to (literally) hundreds of potential private lenders in our network, who can consider funding you.
  3. If your deal makes sense to them based on what you've submitted, then they (at their option) can reach out to you for more info, and /or to fund your deal with their cash.

It’s a simple win/win system, and it’s actually resulted in quite a few happy folks getting their deals privately funded, with everyone making great money in the process. Kapow!

But let’s clear a few things up, shall we?

First off, our aim is to match up as many highly profitable win/win deals as possible through this. We want you to get your deals funded.

That said, shortly after we launched this, a few Mogul have wondered about not hearing back from any lenders after submitting their property.

Simple Answer: Properties submitted with a funding need expressed always go out to the Mogul private money network. From that point, it’s up to them to reach back out to you. So if you don’t hear back from anyone, then chances are your deal wasn't a good fit for them for one reason or another.

Remember, the deal and the numbers have to make sense to them.

Common sense, right?

One lender's eye-opener...

Recently we got an email from one of our private lenders, expressing a little mild frustration, and sharing a really smart idea…

“ ... Out of about 12 requests, there have been 2 I have sent a return message asking for more information. On those the borrower was putting in sufficient funds into the deal to make me feel comfortable. Maybe this would be a good topic to discuss with an education lesson...”

Bingo! Super great idea, lender guy!

So to better educate you on what even constitutes a deal our lender network would be interested in, we decided to put together an entire, stand-alone lesson about just this.

I sent out an email to our lender network asking for their input on four specific questions:

  1. How do you view a deal for possible funding? What are your criteria for the deal itself?
  2. Outside the deal itself, what are you looking for in the person? What should they bring to the table?
  3. What are your obvious "automatic no" type deals/scenarios?
  4. If you could say one thing to anyone hoping you'll fund their deal, what would it be?

Their responses were enlightening, to say the least.

So to help you boost your chances of getting the funding you need, here’s a sampling of the lender feedback we received.

A special “thank you” to all of our lenders who responded. I think the cross section below fairly represents the answers we got back. But if any other of our lenders out there reading this have anything else you’d like to add, just reach back and let us know what you’d like to add here. Just contact Mogul support and it’ll find it’s way into the right hands.

Without further ado, here’s a cross-section of our private lenders sharing what they really want from you. Either the names or faces may have been slightly changed to protect their privacy…

Some General Remarks:

AlexHi JP, I've been really enjoying RE Mogul, and I want to help with this. I do about 3-5 private money deals per month, ranging from 1 Day Funding, to 3 month fix and flip deals. I've also done some pretty big angel investing deals for non-real estate related funding. My coach is Cory Boatright, and he's been coaching me for over 3 years now...so we have a firm grip on what we're doing!

LouieI'm only starting out with this, but I've actually funded a deal since joining. It actually only took me about a month.

How do you view a deal for possible funding? What are your criteria for the deal itself?

Alex1) I need to see an appraisal given in the last 15-30 days, if not sooner, that shows I can recoup my losses by way of wholesaling the deal around 80% of current market value (quick flip should I be stuck with a property).

2) The property should be in my areas of expertise, but I've done deals in areas I'm not familiar with (see next question).

3) A personal guarantee... you walk, I can go after your personal assets if I can't sell the property to recoup my losses. No exceptions.

4) A detailed flip strategy, showing what happens in the worst case scenario if plans A, B and C go south.

LouieMy personal criteria, since I'm "small time", is $25,000 or less, minimum 10%+ interest. Lien in first position. Plenty of equity in the deal, and borrower must contribute and have skin in the game unless the amount borrowed is 50% or less of the as is value.

DorothyWe provide short term loans typically 3 to 24 month terms. We are very risk averse and will only ever lend at 50% to 65% of the as-is value. We will never lend 100% ever! Our borrowers have to have some skin in the game. The deal and its numbers also has to make sense.

WillWe fund 1- 4 unit non-owner occupied properties. The questions I would ask is: what is the purchase price? What is the value of the property? How much money do you want?

BrentThe borrower must have 20% of their own cash into the deal and my loan must be no more than 60% of the ARV.

GreggI like to lend on newer homes, meaning not old houses that will have major electrical code concerns or here in GA that 1970's era poly B - plumbing material. Of course I do not want to have the projected payoff and that includes the original principal + plus origination fees +3 months of monthly interest payments does not create a projected payoff greater than 65% LTV.

DavidValue and upside

Outside the deal itself, what are you looking for in the person? What should they bring to the table?

AlexExperience in renovations, samples of work done on houses, previous deal profit/loss figures, skin in the game, referral from someone I know who is an authority in the industry (Real Estate Coach, a reputable Realtor, or a Colleague I already work worth such as a mortgage broker). I've had borrowers upload video walk-throughs and post them on Dropbox for me, and THOSE are people who know how to make an impression. Why? Because so much is said with video and how the borrower introduces the property and what they intend to do it. It shows what they know and how experienced they are, and makes me feel much more comfortable ponying up the cash they need.

LouieOutside the deal, experience does help, but not needed. Skin in the deal is a must.

DorothyExperience is always very helpful and skin in the game is an absolute must. Lending decisions are based on the deal not the borrower's credit history.

WillExperience investors are always preferred. Someone who has other properties cheap it up as collateral is great. My personal policy is not to ever find 100% of the deal – the investor must have some skin in the game.

BrentWillingness to make the deal happen. If they have done their homework by obtaining good comps and getting a bid on the repair work, that goes a long way. They need to be reasonable on their expectation of profit and time to do the deal.

GreggAs a private lender I still believe in "collateral base funding", I know that seems to be a dying perspective. By collateral base, I mean if the deal involves a loan amount that when secured against the property has a low LTV I do not require nor expect the borrower to any more than upfront fees into the deal. If it is a low LTV and in an area that has a very short organic DOM environment I might even relax on the upfront fees.

DavidExperience is not a big deal, no credit just not uninsurable title credit, jv deals don't need skin...

What are your obvious "automatic no" type deals/scenarios?

AlexNot a single family house, or typical cookie cutter "flip" property, in an area that doesn't have an active history of transactions with cash buyers.

LouieA lot of the requests that are coming in my inbox are asking for the entire purchase price, with very little equity after buyers estimated repairs. (Can’t do that)

DorothyWhen the title is not clean. When the numbers just do not make sense. The property is located in a war Zone. Fraudulent applications.

WillI do not find owner-occupied properties. I don't find properties in war zones or properties that are mansions in neighborhoods where the other properties are not mansions. I only lend against real estate – and no other collateral like guns, cattle, boats, pool tables... I've heard it all.

BrentWanting to borrow more than their cost of the home. Many people have sent me deals where they are showing say a loan of 75% of the ARV and that loan is $20k over what they are paying for the house. So they are either trying to get an instant profit with nothing into the deal, or they are looking for cash to do the repairs and replacements but they don't mention what that amount is. No shin in the game, no deal. No 100%+ requests.

GreggDrug infested areas, blocks 30% vacancy and poor up keep on the occupied houses, older houses that tend to have surprises on the rehab, zip codes with greater than 180 DOM rating.

DavidOvervalued ARV's kill every deal.

If you could say one thing to anyone hoping you'll fund their deal, what would it be?

AlexJust like submitting a short sale, all the items I require such as the appraisal, personal guarantee, etc. should be submitted in a package. If I have to spend an hour researching who you are, the deal is not going to happen.

LouieDo as much due diligence as possible and have as much info as possible when making a request. The purchase price, estimated repairs and your estimated ARV are not enough. Show comps and how did you arrive at those numbers. Place yourself in the lenders position...think “Would I risk my own money if someone was asking me for money in this deal?”

Dorothy100% financing is a pipe dream - don't even bother to apply. You must have some skin in the game - either from you or from an equity partner or from real estate you own that you can use for cross-collateral.

WillLook for deals at a steep enough discount that makes is worth your while. The private lender is going to help you achieve your goals and to do so they need to make sure everything is clean and fair. Also, make sure you pay your lender back on time so they don't foreclosing you. Practice your best policy thinking and you'll get to enjoy great benefits from private lending.

BrentDo your homework and give me sufficient information to make a decision (i.e. ARV with the comps to back that up, show the repairs and replacement cost, and your exit strategy). Make me feel like your know what you are doing from start to finish.

GreggYou don't always have to have capital skin in the game but I do think you always have to have a good safe deal w/a PLAN. You get that by balancing all of the factors together and presenting a sound plan of implementation so I know my money can't get caught up in the property whether you execute or not.

DavidBring all deals to me I will do the heavy lifting... no kidding. Too many people over think and over value, they should leave it to me...

So there you have it...

Some really excellent insights into a cross-section of the minds of the very folks who are able to fund your deals...and willing to do so, if you can find the right deals and come with your A-game to the table.

Now that you know...go get your deals funded!

Do It To It! Immediate Action Steps
  • Start submitting your properties in Do Deals if you're not already doing so.
  • Bring your A-game when asking for funding. Make sure you have a reasonable ARV, that your numbers make sense and that your case is clearly made.
  • Pay attention to what lenders really want to see (in the deal itself, in your due diligence, in what you bring to the table) and make it happen.

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