Private Money Lending
March 17, 2020Private Money Lending is a valuable way to invest your money. With the current state of the stock market, it can provide a more secure way to invest your money with reliable returns. Historically, a typical annual return of 8-10% can be expected. That’s not to say a higher annual interest rate can’t be achieved. Remember this cash flow comes to you without having to do any of the rehab work or management. So what exactly is private money lending and how does it work?
Private Money Lending
A loan given by an individual from their personal money to a real estate investor, secured by real estate. Private money investors are given a mortgage (lien position) that secures their legal interest in the property and secures their investment. Basically, private money lending is your opportunity to become the bank. You collect the profits just like a bank would. It’s a great way to generate cash flow and produce a predictable income stream, while also providing excellent security and safety for your principle investment. You can do what the banks have been doing for years by making a profitable return on investments backed by real estate.
The Process
The funds are borrowed from you to purchase and renovate a property to rehab. At closing, you receive a mortgage on the home (lien position) along with other important documents. Once the renovations are complete (typically 3-6 months), the property is listed to sell. When it’s time for closing, you’ll receive your principle plus interest payment.
Protecting Lenders
Each property acquired is put through a thorough evaluation process in order to assess the profitability before the property is ever purchased. For your protection, you are also provided these documents to secure your investment capital:
Promissory Note: This is your collateral for your investment capital
Deed of Trust/Mortgage: This is the document that is recorded with the county clerk and recorder to publicly secure your investment against the real property that we are providing as collateral
Hazard Insurance Policy: This is where you as the private lender would be listed as the “Mortgagee” for your protection in case of fire, natural disaster, etc.
Some Ways Lenders Fund Deals
As the private money lender, you can benefit greatly from investing your capital. Currently, rates being offered are 4-5 times what a typical bank CD is paying. Rates will fluctuate very little all depending on the purchase price and rehab involved. Private lending means you can relax while the money is in a truly safe place, working for you.
