The Promise of Private Lending The Challenge is to Offer Investors Equity in an Expedited Manner, with a Minimum of Red Tape and Maximum Integrity.
by Jan P. Saltzman
P rivate lenders fill in several gaps for residential real-estate construction that public and private banks are inca- pable of servicing. Market opportunities are present in a variety of locations where the lack of supply of suitable res- idences is overlapped by an oversupply of unsalable residences. Real estate entrepreneurs seize these opportunities by purchasing the latter, refurbishing them and reselling them at a premium because of the limited sup- ply of the former. Such opportunities spend precious few days on the market and the competition is high among con- tractors to obtain them. The window of opportunity to sell a refurbished prop- erty with large profit margins is also limited so that the contractor is highly motivated to turn the property around in the shortest time possible. Because banking institutions are subject to a number of regulatory regimes with In addition, many institutions do not service such short-term capital-intensive activity. Thus, private lending provides both needed capital and terms suitable to very time-sensitive opportunities. Such properties are bought as com- mercial ventures and often resold as personal residences. These types of transactions are typically completed within three to six months. Due to these conditions, the terms of the notes are generally quite short, while the interest respect to residential real estate, the time it takes to respond to the need for funds is often far too long.
professionals, the next step is choos- ing a respected private money lender. Federal Reserve statistics show there is close to $13 trillion in mortgage debt, and the FDIC notes that mortgage lenders have provided over $300 billion in loans. So it is clear that U.S. home- buyers will still borrow money for their biggest purchase. The challenge is to offer those con- sumers equity in an expedited manner, with a minimum of red tape. The goal of the private money lending industry will be to continue to build confidence in the investors who are still analyzing where their trust should lie. •
and initiation costs are greater than traditional long-term mortgages. Private lenders, like more tradition- al institutions, hold security in the property such as a first trust deed or its equivalent, thus limiting or eliminating the risk of unrecoverable funds. TARGET CRITERIA Careful selection among a large number of opportunities is the key to successfully generating the returns investors are looking for. Markets vary a great deal from state to state, city to city, neighborhood to neighborhood. Focusing efforts on due diligence that encompasses all pertinent information about available properties, population demographics and economic trends is a fundamental practice to which investors and private lenders must adhere to be truly successful. KEY FACTORS FOR SUCCESS Evaluating each market area in terms of overall capital requirements, poten- tial sales prices, purchase prices, demo- graphics, local job market, number of experienced contractors and develop- ers, and other relevant data is the first essential step. In addition, an exceptional private lending firm will create a strong team of professionals in each geographic area, including (but not limited to) attorneys, accountants, bankers, mortgage brokers, real-estate brokers, general contractors, de- velopers, appraisers, inspectors, third-party management companies, escrow compa- nies, title companies. Once you have analyzed the target criteria, chosen a market and surround- ed yourself with a reputable group of
Jan P. Saltzman is Managing Mem- ber of LMC Funding, LLC. He has 50 years’ experience in creating, building and operating business-
es. He has successfully established and continues to operate a multimillion-dollar private money pooled capital fund since Jan. 1, 2013. This fund has consistently met or exceeded its investment goals. Past personal experience in real estate includes the purchase, construction, res- toration and sale of more than 40 projects of commercial and residential nature. The formative years of his business career were spent with Liberty Mutual, Pruden- tial and Farmers Insurance companies before starting his own brokerage in 1963. Growth came through aggressive internal expansion and the purchase/sale of 23 other brokerages in California and Israel. The insurance business provided both the ability and money for the acquisition and management of other enterprises.
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