Wednesday, February 24, 2010

Private lending is not a good idea for everybody

At 8:04 AM this morning, the Wall Street Journal reported that banks have posted the sharpest decline in lending they've experienced since 1942. That's a 67-year record that has been broken in our current economic environment.

So you might think that the best solution is to master the art of finding and developing your own network of private lenders who can fund your deals for you...

...But you'd be wrong . Most people absolutely shouldn't even think about working with private lenders.

Since I'm hosting a free training webinar on Thursday night at 9:00 PM ET about the topic of "High End" Private Lending (and how to do it safely and legally), you may be surprised that I'm discouraging you from considering this source of funding.

After all, banks aren't lending much money. And since there's a huge number of foreclosures right now - both commercial and residential - it would seem that now is the perfect time to go out and raise your own "bank" with $5-$50 million waiting for you to deploy it as you see fit.

But it's a bad idea - for most people.

These are the characteristics you must have if you are to be successful in finding, managing and profiting from private lenders:

1. You must respect the law. Did you know there are things you can't even SAY or SUGGEST without being in violation of regulations from the SEC that govern private lender relationships? To violate these regulations is to risk fines, penalties and even jail time. (If you don't have a clear understanding of the law and the results of breaking it, get some education about the right way to be in this business - and only accept that advice from people who have been doing it successfully for MANY years - avoid the fly-by-nighters.)

2. You must be a serious investor. This means that you probably need to have some demonstrated competence as an investor. Sure, there may be private lenders who will make their money available to you without requiring that you prove that you know what you're doing - but working with a foolish private lender is just as dangerous for you as working with a foolish investor is for a good private lender. (If you don't have vast experience in real estate, consider working with smaller private lenders until you get solid experience - or for faster results, seek out a highly experienced partner who needs funding, and join forces.)

3. You must be very well organized. You'll be handling other people's money, and you have to be able to account for every single penny. This isn't an area to fool around with, as there are severe repercussions for being careless with money that isn't yours. (If you're not the most organized person in the world, there are professionals who can overcome this weakness for you.)

So the bottom line is this: Private lending is not a good idea for everybody ... but if you either already meet the above requirements, or if you can take steps to overcome any weaknesses you have, then I can say with great confidence: Having access to a vast supply of capital through private lending will be a central key (and maybe the most important single element) for you to really take advantage of the opportunities that exist in the real estate market right now...

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