Looking at the role of the private lender in real estate investment projects… What do you need to know so you can do it right?
One of the most important aspects of investing in real estate projects is working with a reliable private lender for investment capital. But finding those sources, and understanding the laws that govern working with them can be a tricky business. So where do you begin? How do you find these private lenders? And how do you stay within the laws?
It’s not as complicated as it sounds.
Thankfully, this isn’t rocket science. But it does take some know how, a bit of salesmanship, and boning up on the latest laws. But remember, there are hundreds of real estate investors around the country who have made millions by learning the ropes of raising investment capital. And they’re no smarter than you are. They’re just better informed. So what do you need to know?
What is the role of the private lender?
The private lender is someone who will lend you money for real estate projects, like buying and rehabbing homes, for a favorable interest rate, or a percentage of the net profits of the project, or both. These are typically wealthy individuals who are savvy about the ins and outs of real estate investing.
How can you find a private lender?
There are several ways to locate private lenders. One way is through your local or regional real estate associations. These organizations can typically point you towards reputable private lenders. Another way is reviewing mortgages at your county recorder’s office. This public information will reveal mortgages financed by private lenders.
What about laws concerning working with private lenders?
- In-State Laws: When all parties, and your project, are all in the same state, that state’s laws will regulate your interaction with the private lender. This is called an “Intra-State Offering”. Be sure to check the Intra-state Offering laws in your state.
- Federal Laws: If your projects involve working with out of state lenders, or if you or your projects are out of state, you will fall under the jurisdiction of the Federal SEC. Make sure you check with them to determine the appropriate laws governing working with private investors.
This is just the tip of the iceberg of what you need to know about working with private lenders, but it should get you pointed in the right direction.
You can learn more about working with private lenders by listening to our recent podcast interview with Nick Zalonis, a relative newcomer to the world of real estate investing. Nick, very wisely, realized that the first challenge he needed to conquer was the problem of funding – and you won’t believe some of the brilliant solutions he created. Here’s a link to the podcast episode with Nick. Be sure to subscribe so you get automatic access to new episodes, too.