Private Money Lending Guidelines
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Personal Note from AIG:
I put this together when I first started borrowing private money from a local investor. It represents the terms I had with him. I borrowed on a “per deal” basis.
I’m including this here for you in case it might be helpful in assessing terms for borrowing private money from local folks with cash sitting around.
The guy I borrow from according to the terms laid out here is a doctor who started attending our local REIA group. I got to know him and found out he really doesn’t have time to get into doing deals himself, but has cash sitting around and wants to get a piece of the action. Also feels he deserves a better return than the stock market can likely give him (don’t we all!).
So this guy was a perfect candidate for private money lender. I pitched him on the idea and it was instantly a win/win.
As you can see, the terms we agreed to were much better than if I had borrowed from a hard money lender, which typically charges around 18% and 5 points, and many of them are credit-based now.
As a side note, some of the qualifying criteria here were only necessary the first couple of deals. After that, he didn’t need references or anything. Just a snapshot of the deal, comps, etc. And he started paying me the whole sum up front rather than having the rehab money come out in draws. It was just a matter of rapport and credibility – it makes sense that he’d want to see that I’m reliable, trustworthy and not an idiot before he trusts me with the whole amount at once.
Again, I’m providing this to you here as a frame of reference that might be helpful to you in acquiring your own local private funding.