Lending

Smart investors have been utilizing this investment opportunity for years.  In fact, there have been entire companies built around this strategy. Have you ever heard in the news about big ‘Hedge Funds’ buying real estate for higher returns for their investors? Well, this is the same principal. This is a very safe investment that produces a high rates of return while at the same time provides higher level of security and liquidity. You’ve seen how unsure and volatile the stock market can be.  Do you want your future to be controlled by the events that take place on the other side of the globe? Well, maybe it’s time to consider alternatives… What is Private Lending? It is a loan made to a real estate investor that is secured by real estate.  Private Lenders are given a first mortgage that secures their legal interest in the property and secures their investment.  We are not talking about high Loan-To-Value (LTV) ratios the banks and loan institutions make on homes.  Typical standard LTV ratios for private lenders are 70% or below of the value of the property securing the loan.  This means additional security/equity on the investment for you, the Private Lender. For example, if a property is valued at $100,000, a Private Lender will never have to loan more than $70,000 dollars on the property.  That’s a 70% loan-to-value ratio.  This is obviously a much safer approach from that taken by conventional lenders (banks).  These banks get into trouble because they make loans at an 85%, 90%, or even 100% loan-to-value ratio leaving them no equity for transfer costs, if they are ever forced into a position where they have to take back the collateral property. You, as a Private Lender, will never lend more than 70% LTV.  As a Private Lender, it is in your best interest to minimize risk and maximize return and this is why a loan should never be made without a 30% safety net. Frequently Asked Questions: Who Borrows at High Rates and Why? Real Estate Investors do, because in the business of real estate, that it’s not the cost of money that matters, but quick access to the money so investors can capitalize on opportunities. What’s a typical minimum investment? A typical minimum investment is deal dependent since home prices range in different areas. Who handles all of the details? All the details regarding the loan and proper documentation to protect your interest get handled by a Title Company (or Closing Attorney).  This costs is paid for the by the real estate investor (borrower) and not the Private Lender.   For example, if a Private Lender makes a $100,000 loan, the Private Lender sends a check (or wire transfer) for $100,000 directly to the Title Company and the Private Lender will get a publicly recorded mortgage along with a promissory note for $100,000. Everything is handle by a 3rd party (Title Company) for the safety of all parties involved. How do I get paid? The Private Lender just sits back and collects monthly interest only payments for the duration of the loan terms.  Then, the principal balance of the loan will be paid back to the Private Lender once the property is sold. Is this a long-term investment? Generally, a Private Lender’s loan is tied to a specific project/property with a timeline ranging from 6 to 12 months for renovations and re-sale. Or a Private Lender’s loan can range from 5 years to 10 years if the property is held by the real estate investor as a rental property. What if I need to liquidate? If a Private Lender needs to liquidate, typically, a 60 day written notice is required, because the real estate investor will need to replace the funds with another Private Lender. Is my investment really as safe as it sounds? Yes!  Your money will grow two, three, or even four times faster than your current investments and you maintain control. Remember that making loans is a business and should be treated like a business.  If you set up a simple system and let the professionals implement the system, your loan portfolio can be hassle free and produce staggering yields. What are my options if the real estate investor (Borrower) doesn’t pay? Actually, there are several options if the borrower doesn’t pay. The Borrower could restructure the payment schedule on the note. For example, let’s say the Borrower is behind on payments to you.  And the Borrower can and would like to keep the house, but they can’t come up with enough money to bring you current in one lump sum.  You could let the Borrower continue to make regular payments and make an extra payment on arrearage in addition, or you could simply add the arrearage to the principal balance and extend the term of the loan.  This means you would be collecting interest on interest for the entire remainder of the loan.  There are always ways to work it out if both sides are willing. Have the Borrower deed you the house.  This is an opportunity for you to get a house at a greatly discounted price.  Plus, the repair funds that the Borrower put into the escrow account will be forfeited to you. When this happens, you can create tremendous profit by renovating and reselling the house yourself or keeping it as a rental property and have it cash flow every month. If left with no other choice, you can simply foreclose.  Foreclosure isn’t as time consuming and costly of a process as most people think. It’s as simple as sending your promissory note and mortgage to an attorney and saying ‘foreclose’.  All you have to do then is sit back and wait.  Nine times out of ten, before foreclosure is complete, someone will be calling your attorney’s office with a payoff letter, and your loan will get paid off.  When this happens, you will collect all accrued interest, your principal balance, and all attorneys’ fees, court costs, and all other expenses you have incurred in connection with your loan. If you wind up with the house […]

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