642: Private Money: What the Experts Warn Against Before You Lend (Or Borrow!) w/Beth Johnson and Alex Breshears
en
July 31, 2022
TLDR: Alex Breshears and Beth Johnson, not millionaires nor active investors, started private money lending and made passive income. They've written a book, Lend to Live, discussing it. New investors can start with few thousand dollars; tips include finding lenders, vetting, securing returns, and protecting the funds.

Learning from the Experiences of Private Money Lenders: Vet potential lenders carefully for a successful and secure investment. Build trust and solid relationships for success in private money lending.
Private money lending can be a valuable avenue for real estate investors to diversify their income streams, but it's important to carefully vet potential lenders to ensure a successful and secure investment. The authors of the book "Lend to Live," Alex and Beth, shared their experiences and insights on the process during an interview on the BiggerPockets Podcast. While the episode primarily focused on the lender vetting process, co-host Rob Abasolo expressed interest in becoming a private money lender himself. The episode provided valuable information on the mechanics of private money lending and the importance of building trust and a solid relationship with potential lenders. Additionally, the hosts shared a humorous quick tip about the importance of taking out the trash regularly to avoid unwanted surprises. Overall, the episode emphasized the importance of careful planning, relationship building, and adaptability in the world of real estate investing.
Passive income from real estate for accredited investors: Accredited investors can earn monthly income from real estate through private funds or rent-to-retirement with minimal hassle. Learn about private money lending from a new book or protect your investments with fast landlord insurance.
There are passive ways for accredited or high net worth investors to earn monthly income from real estate without the hassles of tenants, maintenance, or property management. They can do this by investing in a private real estate fund like PPR Capital Management, which has a strong track record and extensive background in both notes and commercial real estate. Another option for those looking to invest with little to no money down is to consider rent-to-retirement, which offers discounted new construction properties and investor loans with low rates and down payment options. For those looking to learn about private money lending, the new book by Alex and Beth is a valuable resource, providing insights for both borrowers and lenders. And for landlords, steadily.com offers fast and affordable landlord insurance with next-day coverage available online.
Understanding the Source of Private Lender's Capital: As market conditions change, private money becomes a valuable alternative to traditional funding. Knowing the source of a private lender's capital is essential for investors, as it impacts the legalities and terms of the lending agreement.
As market conditions shift and traditional funding sources become less reliable, the demand for private lending is increasing. Private money, which is capital that someone directly controls without any strings attached, is different from traditional funding sources like hard money lenders, whose source of capital comes with legal obligations or secondary market requirements. Understanding where your source of capital comes from is crucial for active investors, as it determines the legalities and terms of the lending arrangement. Hard money lenders, while sometimes considered private money, have distinct differences due to their reliance on external sources of capital. As market volatility increases, knowing your lender's source of capital can make or break a deal.
Private money lending vs hard money lending: Focus on borrower vs property: Both private and hard money lending have their merits. Private money lending emphasizes relationships and trust in borrowers, while hard money lending follows institutional guidelines and property fundamentals.
In private money lending, the focus is more on relationships and the borrower's character rather than strict guidelines and metrics. Hard money lending, on the other hand, follows a more institutional approach with set stipulations and underwriting requirements. Beth, who prioritizes the borrower, believes that people can disappoint, and having strong relationships and trust in borrowers is crucial for scaling private money lending. Alex, who focuses on the property, emphasizes the importance of borrowers having fundamental skills like making timely decisions, communicating effectively, and having a solid team to ensure the success of the investment. Both approaches have their merits, and it's essential to consider both the borrower and the property when making lending decisions.
Private lenders prioritize principal preservation and look for an adequate equity buffer: Private lenders prioritize preserving their principal and require a substantial equity buffer in real estate deals. They also value accountability and ownership from the borrower.
Private lenders prioritize principal preservation and look for an adequate equity buffer in real estate deals. They also value accountability and ownership from the borrower. Both Beth and Alex shared their personal stories of accidentally entering the private money lending world, driven by their interest in real estate and the opportunity to invest without getting their hands dirty. While Beth was drawn in by a casual conversation with her future husband, Alex was approached by a stranger at a RIA meeting. Despite their different backgrounds, they both emphasized the importance of a solid equity buffer, ownership mentality, and building trust in the borrower-lender relationship.
Investing in Real Estate with Private Money Lending: Private money lending is an accessible investment option in real estate, requiring less wealth to start compared to traditional hard money lending. Gaining lender experience offers unique insights into real estate deals.
Private money lending can be an accessible way for individuals to invest their own capital in real estate deals, making it an alternative to traditional hard money lending. Private money lenders operate on a smaller scale and often work on the side, while hard money lenders have a more established business model. The speaker started out in private money lending with a relatively small loan of $32,000, and it's a common misconception that significant wealth is required to get started. The experience of working on the other side of real estate transactions, as a lender, provided valuable insights and a different perspective for the speaker.
Investing in Private Lending: A Lucrative Opportunity for Individuals: Private lending allows individuals to earn interest on idle funds through short-term loans, while safeguarding investments through underwriting, title policies, insurance, and equity buffers. It's an accessible and profitable venture for those with specific financial needs or projects.
Private lending can be a safe and lucrative way for individuals to invest their money, especially in short-term loans. For those with capital but limited use, private lending offers the opportunity to earn interest on funds that would otherwise be idle. Private lenders can safeguard their investments through thorough underwriting, title policies, insurance, and equity buffers. Even for those starting out with smaller sums, private lending can be an accessible and profitable venture. The short-term nature of these loans also allows for flexibility, making it an attractive option for those with specific financial needs or projects. Overall, private lending provides a unique avenue for individuals to grow their wealth while helping others achieve their financial goals.
Shift power dynamic from borrower to lender: Private money lending can offer stability and protection by setting terms and knowing returns, but requires careful risk assessment and insurance to mitigate potential issues.
Becoming a private money lender can provide protection and stability in investing by setting terms and knowing exactly how much you'll make. This approach shifts the power dynamic from being a borrower to a lender, and with the right safeguards in place, such as equity buffers and risk assessment, the process can be less of a headache and more secure. However, it's important to remember that default isn't the only risk in lending, and title and hazard insurance are crucial to protect against other potential issues. Overall, being a private money lender can be a lucrative and secure investment strategy when approached with the right knowledge and precautions.
Managing Multiple Properties with Specialized Insurance Providers and Tax Savings: Veteran investors use specialized insurance providers to manage multiple properties under one schedule, potentially saving on taxes through tax-deferred exchanges offered by companies like 1031 Pros, and improving efficiency with unified business management suites like NetSuite.
Veteran real estate investors prefer to use specialized insurance providers like NREIG for their insurance needs, allowing them to manage multiple properties under one insurance schedule. Another key takeaway is the potential savings from tax deferred exchanges offered by companies like 1031 Pros, which can help investors minimize capital gains taxes when selling properties. Additionally, implementing a unified business management suite like NetSuite by Oracle can help business owners reduce costs and improve efficiency. Despite the occasional default, proper precautions during the origination process can help minimize the risk of foreclosure.
Communication and Flexibility are Key when Working with Private Money Lenders: Effective communication, flexibility, and thorough vetting are essential when working with private money lenders. Foreclosure should be a last resort, extending loan terms can be a solution, and never send money upfront. Performance is more important than rates and terms, especially for novice borrowers.
Effective communication and flexibility are crucial when working with private money lenders. Foreclosure should be a last resort, and extending loan terms can be a viable solution when unexpected issues arise. When vetting a private money lender, never send them money upfront, and consider checking industry associations, NMLS numbers, and past deals to ensure legitimacy and performance. Performance is more important than rates and terms, especially for novice lenders, and it's essential to ensure they understand your business and project needs. While there may be a leap of faith involved with a new relationship, thoroughly interviewing potential lenders and understanding their process and experience can help mitigate risks.
Communicating Effectively with Potential Private Investors: Respond promptly, ask questions to understand investors' lending preferences, and gauge their confidence and decisiveness to secure successful partnerships in private investing.
Effective communication is crucial when seeking private capital. For novice investors, educating them on how to securely invest in your project can help build their confidence and trust. However, it's important to gauge their level of confidence and decisiveness in return. Responding promptly and asking questions to understand their lending preferences can help determine if they're a good fit for your project. Asking about their lending comfort level and the amount of capital they have available can help narrow down the possibilities. Remember, a slow response or lack of decisiveness may indicate potential issues down the line. Overall, prioritizing clear and prompt communication can lead to successful partnerships in private investing.
Asking about a lender's financial capabilities and closing speed: When working with private money lenders, it's important to ask about their availability of additional capital, ability to close deals quickly, and how these factors align with your priorities. Building relationships can also help facilitate quick closings.
Effective communication and due diligence are crucial when working with private money lenders. Borrowers should ask lenders about their availability of additional capital and their ability to close deals quickly to avoid potential issues. A softer way to ask about a lender's financial capabilities is to provide the purchase price range of the properties you're looking at and ask if they could fund a loan for that amount. Closing quickly is important in today's market, as being able to perform and get to close is essential to maintain equity buffers. Ultimately, borrowers need to determine their priorities – speed, quality, or cost – and find a lender that matches their needs. Building relationships with private lenders through networks can also help facilitate quick closings.
Mutually Beneficial Private Lending Arrangements: Directly lend to borrowers, ensure communication with decision-makers, and avoid formalities for a successful private lending experience.
Private lending can be a mutually beneficial arrangement for both the investor and the lender, leading to a recycling program where funds are continually lent and re-lent, reducing work for both parties. It's important to ensure that the lender is a direct lender and not a broker to avoid additional costs and maintain direct communication with the decision-maker. Cash Flow Quadrant and Psycho-Cybernetics are recommended books for gaining insights into investments and personal decision-making, respectively. Private lending can be an informal process, so be cautious of lenders who appear too formal or who require extensive documentation, as they may not be the actual decision-makers.
The importance of belief and open-mindedness in real estate investing: Belief in real estate investing and staying open-minded are essential for success in private lending. Focus on personal experiences, build a network, and stay flexible to new opportunities.
Having a strong personal belief system and being open-minded are crucial for success in real estate investing, especially in private lending. The speaker shares how reading Robert Allen's book in high school opened their eyes to the possibilities of real estate investing, and how they found a gap in the market for a practical guide to private lending. When starting out, they recommend focusing on personal experiences and building a network rather than getting bogged down in technical details. Additionally, they caution against over-engineering goals and being too rigid in plans, as the path to success may not always be clear-cut. The speaker emphasizes the importance of staying flexible and being open to new opportunities. Overall, their message is that success in real estate investing requires a combination of belief, knowledge, and a willingness to adapt.
Focusing on adding value sets successful investors apart: An abundance mindset, perseverance, and a focus on adding value to others are essential for successful real estate investing
Having an abundance mindset sets successful investors apart from those who give up or never get started. By focusing on how you can add value to others, you'll attract like-minded individuals and potentially find business partners and deals. Perseverance is also crucial in real estate investing as you'll encounter trials and setbacks, requiring a survivor mentality to keep pushing forward. The book "Lend It, Live It" by Alex and Beth can be purchased on the BiggerPockets website, and they can be reached at alexandbeth@lend2live.com. Beth can be contacted at Flynn Family Lending, and Rob can be found on YouTube at Rob Built and on Instagram as Rob Built. Remember, no one likes a quitter, so keep going!
Exploring Private Money Lending for Real Estate Investing: Private money lending offers accessible and passive investment opportunities in real estate, allowing individuals to earn passive income while living actively. Beginners can start with minimal capital and find investor-friendly agents for guidance.
Private money lending is an accessible and passive way for individuals to invest in real estate and work towards financial freedom. Brandon and Alex shared their experiences of starting in the industry without significant capital and emphasized the benefits of this approach, including the ability to live actively while earning passive income. They encouraged listeners who are interested in real estate investing to explore the opportunities in private money lending, and even mentioned open positions for brokers in their respective companies. The speakers also emphasized the importance of finding an investor-friendly agent to help navigate the market and make informed decisions. Overall, the discussion highlighted the various ways individuals can engage with real estate investing beyond full-time jobs or significant upfront investment.
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