- Why Do You Borrow From Private Lenders At High Rates?
- What’s is the minimum investment?
- Do I have to handle all of the details myself?
- Are these long-term loans?
- What if I need to liquidate?
- Is my investment really as safe as it sounds?
- How do I use my IRA’s or pension plan?
- What happens if your company doesn’t pay?
- What kind of documents will I as the private lender receive?
Why Do You Borrow From Private Lenders At High Rates?
There are several good reasons for this. Especially in the real estate business a good deal can be here today and gone tomorrow. Those investors who can act fast can capitalize on the best deals which in turn provide the best profits. Private loans give us a competitive advantage over other investors who take weeks to go through the bank approval process in order to purchase properties.
Sure, we can borrow at lower rates from a bank; however, it often takes weeks or months to close on a bank financed property. It is our ability to close on deals fast with cash that sets us apart from our competitors.
What is the minimum investment?
It depends. Each private loan that we offer is based on the particular project and our exit strategy with the property. Some properties we acquire and hold for the long-term. For these types of properties we may offer longer term loans at higher dollar amounts ($100,000 +).
However, traditionally our minimum investment is $40,000. If you have a lower number in mind we still may have opportunities for you. Please contact us to see if there’s a fit for us to work together at a lower amount.
Do I have to handle all of the details myself?
Nope. We handle all of the details for you. All you have to do is let us know how much you would like to invest and we’ll get you the proper paperwork to get the ball rolling and to protect your interest in the private loan. All of this costs you nothing. The borrower pays all costs. If you make a $100,000 loan, you send a check for $100,000 to the settlement agency and you get a mortgage for $100,000.
Are these long-term private loans?
No, we have a large range of projects ranging from 5 months to 3 years. You can pick a term that suits your strategy. It’s your money and it’s your choice.
What if I need to liquidate?
If you would like out, to be fair for all parties, a 60 day written notice is required because we will need to replace your funds with another investor’s funds. Truly, you really shouldn’t make private mortgage loans if you feel you will need the funds liquid in a short timeframe, but the option is always available. Because of the costs associated with replacing your funds with another lender’s, there is a penalty of half of your accrued interest.
Is my investment really as safe as it sounds?
Each property that we acquire undergoes a rigorous financial evaluation in order to ensure profitability before the property is ever purchased. We only do deals that we know are profitable for us, and only offer private loans to our lenders that will be profitable for them as well.
However, 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 can I use my IRA’s or retirement plan?
Most people don’t know, but making real estate loans is a widely accepted use for IRA’s and other Retirement Plans. 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 potentially Tax free or Tax Deferred (consult your accountant to verify your tax status with your funds)!
In order for you to use retirement accounts for loans they must first be administered by a third party custodian. Please contact us if you would like assistance in finding a third party to set you up.
After selecting your custodian, you simply send a transfer form to them and they’ll do all of the work for you. Some custodians offer a checkbook from which you can write checks directly from your IRA account without the sometimes lengthy custodial approval process that goes with so many other custodians. Once you’ve done that you are ready to make private mortgage loans.
What happens if your company doesn’t pay?
Actually, there are several options available, but first and foremost, please be aware that integrity and honesty is an essential part of our business and we only make sound investment decisions. If we produce even one negative result for a private lender that could affect our entire business in a negative manner. So, we operate our business in a way that we ensure our private lenders are taken care of each step of the way.
However, to lay out the options:
- Restructure the payout schedule on the note. For example, let’s say we are behind on payments to you. Assume our company can and would like to keep the house, but can’t come up with enough money to bring you current in one lump sum. You could let us continue to make regular payments and make an extra payment on our arrears in addition, or you could simply add the arrears to the principal balance and extend the term of the loan. This option would mean that you would be earning interest on the interest and would result in a higher return in the end to you. This is just one option out there in the event that this case should occur (which it has never occurred with our company to date)
- Place the signed deed in escrow and deed you the house. Another option may be to simply have our company deed you the house. After we deed you the house you are the owner of the property which we were able to purchase at a steep discount. You can then of course hold onto the property if you wish or turn around the sell the property to liquidate the asset. Because our private lenders typically loan 65% LTV (loan to value), should this situation occur the private lender would take ownership of the property at a heavily discounted price.
- As a last result, you can simply foreclose. Because we pride ourselves in treating our private lenders like gold we prefer not to let a situation get to this point. We would rather simply deed you the property than force you to foreclosure. However, to cover all of the bases, should foreclosure be the option available, 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.
This information has been provided to help you make a well informed business decision. We want to make sure you have all the facts and answer any potential questions.
What kind of documents will I as the private lender receive?
The documents and process is rather simple. All private lenders receive a closing package which should contain the following:
- The Mortgage Deed of Trust. The original will be recorded in public records in the county that the property is located in and then returned to you in the mail. We keep a copy for our records.
- The original Note. The note is executed, and you receive the original.
- Hazard insurance endorsement. Private lenders are named on the hazard insurance policy, also known as casualty insurance, as the mortgagee which our company pays for. This further protects you and your investment.
These documents combined work to provide you with further security and comfort on your investment.
I realize that you likely have more questions about becoming a private lender for our company, such as specific projects, specific returns, etc. I hope we’ve answered some of your questions and opened you up to the incredible power of making private mortgage loans.