Why Private Money Lending?

Regardless of if you have a long term or short term investment system, private money lending is the quickest way to fund the growth  of your real estate portfolio. Private money lending works in the same manner as borrowing money from a bank, but the bank is a private individual with little or no stringent lending criteria who simply receives a Note and Deed of Trust or Mortgage (depending on the state you are investing in) in exchange for financing your deal.

Private money lenders can bring quickness and efficiency to your transaction by asking fewer questions and moving money faster. Being able to offer a accelerated closing with private funds will motivate sellers to take your offer over your competition, and will encourage them to take a much lower price from you than they would from a traditional buyer.

Low Costs, Flexible Terms:

Private money lenders are very cost effective , with ratesvarying  from no points and 8% interest, to 3 points and 15%. Pricing and terms should differ  depending on the overall risk associated with the deal. Private lenders can provide different types of funding including “flash cash” (when you only need funds for a short term ) to longer term notes as long as 5 years or more. Lenders may prefer  to receive interest payments monthly, quarterly, annually, or at the time of loan maturity.

Transaction fees on Private Money Loans are smaller  than most as private lenders do not have underwriters, processors, etc. on staff , and do not require nearly as much paperwork as traditional or government-backed loans.

Why you should protect them, and how:

As a professional investor, you will want tosecure the interests of your private lenders as well as your own . We suggest providing them with the following documents to secure their investment capital:

o Promissory Note: This is your lender’s collateral for their investment capital

o Deed of Trust, or Mortgage (varies based on location ): This is the document that is on record with the county clerk and recorder to publicly secure their investment against the real property that you provide to them as collateral

o Hazard Insurance Policy: List the Private Lender as the “Mortgagee” to protect them in case of fire or natural disaster, etc .

o Appraisal (optional): Many private lenders will simply research the value of a property via the internet  before making an investment decision. As many of your acquisitions will be properties that must have  substantial amounts of renovation, an appraisal may be unnecessary to establish value if your purchase price is reasonably well below market. If a lender does require an appraisal, be sure to give the appraiser a copy of your renovation plan of work with total renovation price estimate and ask the appraiser for an ARV (after repaired value) figure on the appraisal.