By BiggerPockets’ James Dainard
Why would you lend your private money in the first place?

- Diversify the type of real estate assets you are exposed to
- Dictate the terms and the duration of the loan
- Reduce risk of your portfolio (lend at a discounted loan-to-value such as 70% LTV and get a first lien on the property)
- High returns (10 to 18%) without all the work of finding the right property and dealing with repairs
How to vet the deal and the borrower/operator correctly?

- Verify the information the borrower brings (budget and value)
- To verify value, you can rely on a local broker/agent or an appraiser (paid analysis)
- For construction / renovation loan, the copy of the budget must be reconciled with the after-repair value. Budgeted items must make sense
- For the operator, focus on their experience but also their credit report (no active bankruptcy or collection) and their asset sheet (which can serve as additional collateral)
- To legally protect your money, everything must be duly documented : get title insurance, an escrow, deed of trust and a promissory note
- Get a personal guarantee (do not do second mortgages)