Benefits of Passive Investing in Real Estate
You, as the private money lender can benefit greatly from investing your capital:
- Safe Investment Secured by Real Estate
- High Returns on your Money (10% to 12% return)
- A Predictable Income Stream because Rates Fluctuate Very Little
- No Management Costs
- We Follow a Strict Due Diligence Process
What is Private Money Lending?
A private money loan is a loan that is given to a real estate investor, secured by real estate. Private money investors are given a first or second mortgage that secures their legal interest in the property and secures their investment. When we have isolated a home that is well under market value, we give our private lenders an opportunity to fund the purchase and rehab of the home. Through that process, the lender can yield extremely high interest rates â 4 or 5 times the rates you can get on bank CDâs and other traditional investment plans.
Essentially, private money lending is your opportunity to become the bank, reaping the profits just like a bank would. Itâs a great way to generate cash flow and produce a predictable income stream – while at the same time, provide excellent security and safety for your principle investment. You can do what the banks have been doing for yearsâŚmake a profitable return on investments backed by real estate. There is no other investment vehicle like it.
Common Ways Private Lenders Fund Deals
| Cash | Cash held in most types of bank accounts can be accessed quickly and can fund your deals in minutes, instead of hours or days. Fees are generally minimal for wire transfers and cashierâs checks. |
| Home Equity Line | A home equity line of credit is a very powerful source of funding that many people have and donât even think of. Un-leveraged equity is dead money and itâs not making any interest. You can easily tap into that money. Itâs a way to make sure youâre in first position when weâre ready to pull the trigger and buy a property. |
| Personal & Business Lines of Credit | Personal loans and âsignature lines of creditâ can be obtained from most banks or credit unions by anyone with good credit and a stable income. |
| Retirement Accounts | More and more private money lenders are using their IRA funds to invest in real estate. A self-directed IRA is essentially the same as a traditional IRA, but allows you to purchase a broader range of investments, including real estate. |
| Liquidated Securities & Investments | Investments are a way to put your savings to work earning more money. However, if your stocks and investments have not performed as you had expected, it might be time to consider other investments. As you know, stocks can be liquidated as and when you wish. Sometimes you need to liquidate your investments because you need the money for something you want to purchase such as real estate. |
Overview of Private Lending Process
Common Private Lending Questions
How is the money used? On a new home purchase requiring renovations. The cost will be allocated to the purchase price, renovations, carrying costs, cost to resell, and also a small buffer for unexpected expenses.
How can you afford to pay such high returns? We make our money on the purchase. We may pay very high returns, but it allows us to purchase property 20-30% below a retail purchaser. That instantly creates thousands of dollars in equity. Also, typically we cut out the middleman in transactions, such as: commissions, mortgage broker fees, loan fees; and our attorney costs are lower because there is less work for them to review.
What if the market crashes or the property values go down? The market crash does not drastically effect our model. Remember, we buy properties below current market value and force appreciate them through the renovations and rehab. Because of this approach, we are able to build 30% – 35% buffer for profit. Most of our projects complete in 3-6 months and will be sold in 1-3 months. Never in the history of US real estate the market has dropped by 30% within 6 months and YES not even in 2008.
How long will my funds be held? The majority of our loans are set up on an 8-12 month note, but it depends on the size of the project. If we are doing a teardown and rebuild, we will have to wait on the county inspectors for approvals . This will cause delays. But, we account for all of those details upfront and will give you estimated time frame for the return on your investment.
When will I receive payments? Typically, we pay one large lump sum at closing on a short-term note. This is much easier to manage for both of us, especially if weâre working out of a retirement account. On a longer note, we will pay monthly, just like a typical mortgage.
Is there a personal guarantee on my investment? Although there is no government backed guarantee on these privately held real estate notes, in business, we can make a commitment to you. We will work hard to to protect your interests in the process of protecting our own, because we have a ton of skin in this game, too. When you win, we win. Youâre deriving protection from the equity in the real estate. If at any time we were to default on the note, you have legal right to take the home (essentially foreclose on us). You have to remember we plan for the worst.
How much is it going to cost me to lend to you? It is our policy to pay for all the closing costs so that your entire investment goes to work for you. We will pay for the closing agent, document preparation fees, notary fees, overnight mail fees, bank wire fees and recording costs. We do not charge any fees or commissions to our private lenders.
What if you canât sell the property after itâs been rehabbed? While selling the property is certainly our goal, it is important to remember that there are other options available. We can turn the property into a cash flow property and rent it out. We can also refinance it and get you out of it with your money paid back plus interest.
Who buys insurance? We do. We pay for a title search and also a title insurance policy on the home, just as we would in a typical transaction.
How am I personally protected in all of this? Each property we acquire is put through a rigorous evaluation process in order to assess the profitability before the property is ever purchased. Integrity is an essential part of our business, and we only make sound investment decisions. We will provide you the following documents to secure your investment capital:
- Promissory Note: This is a legally binding signed document that specifically includes our promise to pay a set sum to you on or before a set date.
- Deed of Trust/Mortgage: This is a legal document that states the property is being used as collateral for the loan that was provided to pay for the property. The Investor, as âMortgagor,â has the right of first lien holder and Power of Sale on the property. This means that you will be in first in line to be repaid those funds, plus interest, when the property sells. You will even get paid before we do.
- Hazard Insurance Policy: You as the private lender would be listed as the “Loss Payee” for your protection in case of fire or natural disaster, etc.
Call Us! (828) 722-1833