What is Private Money Lending?
If you’re not consistently getting big returns on your current investments such as your IRA, savings account, or stock portfolio, then you will be excited to learn about a smarter way to invest in today’s market – especially in today’s market. This method has been successfully used for years by real estate investors.
If you have funds to invest but know that the stock market and other traditional investments are either not the safest decision right now or not getting satisfactory returns right now, consider the world of private mortgage lending. Private money lending could offer a much higher rate of return, from 8% – 15%, and is backed by a tangible asset: real estate. The best part is that you make the rules when it comes to terms and interest rates and therefore you have control over how your money is being invested.
Who is involved?
Your borrowers are real estate investors who come across great deals at deeply discounted prices and need to fund the purchase quickly or risk missing out. These properties are often in need of repair, which is what allows investors to sell them for a big profit. This is called “rehabbing” or “flipping.”
Lots of times, these rehabbers choose not to work with traditional lenders. Instead, they borrow private money from lenders (like you) who understand the real estate business and can fund deals quickly. Because the rehabbers need funds quickly and usually for a short amount of time, they are more than happy to accept loans with higher interest rates and terms that favor the lender (you.)
This works out to your advantage because now YOU make a profit in today’s busy real estate market without leaving the comfort of your home. In this situation, you are the bank and the investor or rehabber does all of the work. You are lending money just like a bank would.
Is it safe?
Rehabbers only need to borrow around 60-70% of the home’s “after repair value” to fix up a property, so the worst-case scenario is that your borrower defaults on the loan and you walk away with a deeply discounted house. Since you choose who borrows from you and you decide whether or not to lend for a particular house, this works out in your favor.
To make sure this process is a smart one, you’re going to want to make sure an attorney, title company, or escrow company handles all the paperwork on your behalf as the closing agent. The good thing about this setup is that traditionally you can have the borrower pay all costs involved out of the proceeds.
Never sign a check to the real estate investor yourself; make sure this is all done through a professional third party to handle the closing. To further protect your investment you’ll also want to make sure the real estate investor gets title insurance and property insurance with your name as the “loss payee” to protect your investment. After you have provided the funds and closing has concluded, the closing agent will send you all the paperwork including the mortgage or trust deed with you in the first position.
As a private mortgage lender you have your money is working for YOU and is in YOUR control. While others are complaining about the current economy, you can take advantage of this boom time for real estate investors by offering short term loans and high rates for consistent, high yields on your investment.