On the show today we talk… Private Money Lending for Real Estate Investing with Beth Johnson!
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Show notes: Private Money Lending for Real Estate Investing with Beth Johnson!
Joe is in Enumclaw WA, Julie and Beth are in Seattle WA.
The sun is actually out today!
Successful people get stressed too
Life is short and you should try to chill out and take a break from time to time.
Alternative to hard charging lifestyle
Beth and Matt Flynn of Flynn Family Lending can help people lend out money to create more passive income.
They match borrowers with people that want to lend money. Sometimes the W2 type of lenders that have those full time jobs.
FFL makes it a direct relationship between the lender and borrower.
A whole trust deed relationship
There’s an investor that is going to buy a property and then FFL matches a private lender with that investor to match up with their situation.
Fees
FFL takes points and fees for the life of the loan. They offer a concierge service for the life of the loan/relationship.
Can you hire FFL
They’ve had a few people come to them over the years about this, but it hasn’t worked out.
The benefit of working with FFL is they vet the deal and work through it with you.
How do you get started with FFL
You reach out to Beth or her partner.
Then you go through the WHOLE process that FFL has created to make sure you understand everything.
From there you can look through the portfolio to see what would fit the lenders needs and wants.
Beth’s new book: Lend to Live
Beth met her writing partner, Alex on social media.
There’s not a lot of material out there teaching people how to do private lending correctly.
There was a desire to help each other grow and teach others!
Within months they had a book deal and not one, but two contracts!
It kind of fell in Beth’s lap, and was a blessing.
How long did the book take to write
Only 5 months! Crazy!
You will want to buy the book ASAP
Private money lenders are hard to find
You don’t share your private money lender with other people because you want that money to be available when YOU need it.
BUT, here we have Flynn Family Lending who has a pool of these private lenders. They broker private money relationships.
It’s a bit of a tough business to manage because there are so many moving pieces.
Gap funding
Utilizing funds to bridge the gap between the first lien lender and the longer term lender.
What does Beth’s personal lending look like
They like to keep the structure VERY conservative. You don’t want to risk your money.
Hard money lenders can absorb higher risk, but private money lenders cannot. But there is much more flexibility for a private money lender.
You don’t need to be licensed, and you can make up the rules that you and the borrower come to terms with. It’s usually 65% combined loan to value to FFL, but you could go much higher.
There’s a lot of creativity available that hard money lenders aren’t able to do.
Private lending standpoint
The capability of the borrower is very important. Then you have the collateral itself, the property.
You are looking at the borrower vs. the property.
Beth’s writing partner looks more at the borrower than the property.
When you start to scale… You have to look at things a little quicker. That’s what Beth likes to look at the property first.
People can disappoint you but properties don’t.
Can you lend to individual or LLC
They can do both.
There is no lending on something they are going to live in.
If they are lending to an entity, they would need a personal guarantee.
What type of properties you can lend on
You have all kinds of properties and investment styles out there.
Will you go into 2nd position with a hard money loan in 1st?
Yes, it has happened. But it’s not super likely.
They will lend on any asset class that is not owner occupied.
No house hacking, unfortunately. Nothing that you are living in.
WA has aggressive consumer protection laws.
Hard money and private money is for investment only.
If you are lending in 2nd position behind hard money
Do the docs have to allow the 2nd position? Technically, yes. Generally they don’t look into that too much because FFL loans are short term. 1 year or less.
Loaning on a BRRRR
It’s similar to a flip, but you want to figure out what is the right loan amount.
Borrowing the right amount of money is a good thing to think about. If you borrow more, then you have to pay more interest.
Trying to get as much out on the refinance is the game.
Because a refinance is super expensive right now… it might make sense to leverage a new property against the equity on the first property. This is SUPER COOL!!
Goal on the BRRRR
Can you leverage a borrower’s personal property?
Yes, but they don’t think it’s a good idea. You might have to foreclose on someone’s personal property.
Advantage to working with FFL
They are also local investors themselve.
What about multi family
They like to do loans of less than a million dollars.
Really, the 1-4 units work the best.
You want to make sure that lenders have enough money to keep head above water for a few months.
When you have a commercial loan they look at those reserve funds.
Are there any investments that you wouldn’t lend on?
How about AirBnb deals? They are looking at the exit strategies, and how do they look. Can they be refinanced out…
The problem with short term rentals… You have to look at the municipality and what they will do. You need to show a whole year of P&L’s to refinance, and a lot of short term rentals don’t have that.
FFL lending will entertain the short term rentals, but they will need to have 12 months of P&L.
They need to have viable exit strategies.
What will the market rents bare if the short term rental goes away.
What are the top 3 things you’re looking at
Beth wishes it was a checklist thing, but no two borrowers are the same. That’s the part that makes private lending so difficult. She wants to see the viability of the project first.
The book talks about how you can look at a deal from so many different angles.
Follow up questions are so important in figuring out if you should lend to a person.
Smartest kids
Julie says that some of the smartest kids she knows are starting to think about real estate in their teens. One of her daughters is starting to understand how passive money can allow them to live the life they want.
2023 is a great time to consider becoming a private lender!
What is the best way to get in touch with Beth
Get the book on Bigger Pockets because it’s awesome! You get a few bonus things if you buy the book on Bigger Pockets.
What are Beth’s go-to places for continuing education
Local events, like WARea or Reaps.
She likes to listen to Bigger Pockets. She gets the ideas to her kids by having Bigger Pockets podcast running in the background.
Any tools/apps that Beth uses daily
Pellego.com for deal analysis does a great job for ARV’s.
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