Critical Mistake New Investors Make With Private Lenders

Q: Gerald, I want to start flipping properties, but I need to get some private lenders lined up first.  Do you have any tips you can share with me? Valerie, San Diego, CA.

A: The first thing that you – or any investor –  needs to do is to identify a good, profitable real estate deal to invest in.  As far as lining up private lenders first before you do anything, that’s unlikely. “Give me money!” is not a compelling pitch to a potential private lender.

In general, there are two things you need to prove to a private lender before they’re going to lend you money.  The first thing is that the deal you are investing in is secure. You really need a deal to show them what you’re going to invest in.  You want to make sure there is a sufficient equity cushion in that real estate deal and that their money is secured against the property. That’s the first thing you need to prove to them.

The second thing you need to prove to them is that their investment money is safe with you. You need to prove that before they’re going to give you any money.  That is going to be based on your knowledge, your experience, your track record and your reputation.  But again, you really need a deal before someone is going to lend you money.  And I think you make a mistake by assuming that a private lender is going to just give you money before you actually bring something to the table, i.e. a potentially profitable real estate deal and the sense that their money is safe with YOU as an investor.

Thanks for your question, Valerie! Good luck.

For more real estate information and tips, visit my blog at geraldlucas.com.