Just a few words of advice for those who are considering becoming a private lender. Although there are many honest, competant people and businesses out there with which you can forge a good and profitable relationship, there are many charlatans as well.
When interviewing someone with which you are considering doing a private loan here are a few things to keep in mind:
1. It is a good idea that they have some 'skin in the game.' If you are financing the entire deal then you, and not them, are going to be on the loosing end if the deal goes south.
2. Have a good and competent attorney review the documents and attend the closing. A lot of potentially bad things can happen at closing and you want someone there representing your interests. It might seem a bit costly but how much money are you going to lend? Or to put it another way; How much money do you have to loose?
3. Do at least a cursory internet search on the potential borrower. Try to ascertain his/her/their reputation. Is their reputation good? Then perhaps you should contact someone who has done business with them before. A competent attorney may be able to help with this as well or perhaps a 'Skip Tracer.'
4. Whether this is flip or a long term buy and hold it is still your capital at risk and you must think like a bank because you are the bank. Take a look at what banks do before lending to anyone. This is not to say that you have the resources of a bank but just keep in mind that there is a reason that banks have huge buildings and that most of us have much smaller houses.
5. Be sure to get both a registered mortgage as well as a note from the borrower. Have your attorney review both of these documents. This is critical and should not be overlooked.
6. One final piece of advise regarding you potential borrower: Check to make sure that there are no outstanding legal judgements against them. If there are outstanding judgements against them you may be the one who, unknowingly, may pay them off.
In this day of very low interest rates private lending might seem attractive. In some cases it can be beneficial and profitable for both parties. Just be sure to approach the potential investment/borrower with a bankers perspective and a healthy dose of caution.