Who Borrows at High Rates and Why?
Investors do, because they have learned in business that it’s not the cost of money that matters, but ready access to the funds so we can capitalize on opportunities.Real estate investors can acquire good deals in properties because they can act with lightning speed and can close with cash. Private loans provide this competitive advantage over retail buyers who take weeks to go through the bank approval process in order to purchase properties.Additionally, if a real estate investor locates a good deal on a property, many times the bank wants to loan on the purchase price not the value of the house, thus penalizing the investor for finding a great deal. Having access to money is generally a deciding factor in investing in real estate, so paying a higher interest rate is irrelevant when compared with the risk of losing the deal. And, this is great news for Private Lenders. To learn more about our Private Lenders Program, please visit our website.
What’s the minimum investment?
The minimum investment will typically depend on the real estate investors needs and guidelines. It is typically best if one private lender covers the complete cost of the transaction.
Who handles all of the details?
The real estate investor must get you proper documentation and protect your interest. All of this should cost you nothing. The borrower pays all costs. If you make a $100,000 loan, you send a check for $100,000 to the closing attorney and you get a mortgage for $100,000.
How do I get paid?
The real estate investor is responsible for getting the funds into your account. Just sit back and receive a quarterly interest only check for the duration of your investment. Other payment terms are possible. However, the majority of investors prefer to receive a one time, principal plus interest payment at the completion of a project.
Is this a long-term investment?
Generally, your investment is tied to a specific project with a timeline ranging from 3 to 12 months. You work directly with the Real Estate Investor to select a term that suits your strategy. It’s your money and it’s your choice.
What if I need to liquidate?
If you want out, a 45 – 90 day written notice is typically required, because the Real Estate Investor will need to replace your funds with another investor’s money. You really shouldn’t make mortgage loans if you feel you will liquidate this shortly. Also, unlike with a bank CD, you should negotiate to ensure there is no penalty for early withdrawal.
Is my investment really as safe as it sounds?
Yes! A seasoned Real Estate Investor always follow these common sense guidelines. Your money can grow two, three, or even four times faster than your current investments and you maintain control.
Be sure to require that each of the properties that you consider lending upon is put through a rigorous financial evaluation in order to evaluate the value and profitability before the property is ever lent on.
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.
How do I use my IRA’s or pension plan?
Making real estate loans is a widely accepted use for IRA’s and other Retirement Plans. Most people do not know that you can make private mortgage loans using the funds which are already in your IRA’s and other retirement plans . Think of the power of loaning out funds at high interest rates that are Tax free or Tax Deferred!
In order for you to use retirement accounts for loans they must first be administered by a third party custodian. To find a custodian, talk with a Real Estate Investor or search with Google for IRA custodian to get a list.
After selecting your custodian, you simply send a transfer form to them and they’ll do all of the work for you. Once you’ve done that you are ready to make private mortgage loans.
From there, you simply notify your custodian about the investment you are looking to make and send the check for the gross amount of the loan. Even better, have the Real Estate Investor do all the work for you and you just sign few documents, sit back, relax and wait for your money to grow tax free or deferred like grass on a spring morning.
What are my options if the Real Estate Investor doesn’t pay?
Actually, there are several options but first and foremost, please be aware that “Integrity” is an essential part of business. Be sure to find out the following from the Real Estate Investor.
- What is their track record with private lenders?
- Have they ever lost money or missed payments?
- Can they provide proof of the property’s value?
- Have they ever lost the funds of a Private Lender?
- Are they will to invest their own funds in a project?
However, to answer the question:
- The Real Estate Investor could restructure the payment schedule on the note. For example, let’s say the Real Estate Investor is behind on payments. Now the Real Estate Investor 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 the Real Estate Investor continue to make regular payments and make an extra payment on the arrearage, 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 Real Estate Investor deed you the house. This is an opportunity for you to get a house at a greatly discounted price. When this happens, you can create tremendous profit by reselling the house.
- 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 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 that doesn’t mean you have to keep it. It can be sold immediately at a fair sale price and still produce a profit over and above the already high yield on your loan.
What kind of documents should I as the lender receive?
Your closing package should contain the following:
- A copy of the mortgage or trust deed. The original will be recorded.
- An original Promissory Note.
- A hazard insurance endorsement naming you as mortgagee.
These documents provide you with the security you need and the return which you desire.
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