Frequently Asked Questions about Private Lending
Q: Who Borrows At High Rates?
A: Businesses that realize that it’s not always the cost of money that counts, but the availability. Private money makes it possible to acquire good deals because the funds are available quickly instead of waiting weeks or months for a conventional bank loan. An experienced real estate investor can locate good deals on property. Typically, a bank will loan on the purchase price not the value of the house, which would require the investor to use large amounts of his or her own money to cover the difference. Having cash available will make or break many deals and paying a higher interest rate is negligible since some profit is better than no profit.
Q: What kind of loans are private mortgage loans?
A: It is a loan that you make to a real estate investor which is secured by the actual property that the real estate investor purchases. If done correctly, this can give you a large amount of security. To maximize the security of the loan, we purchase property with very low loan-to-value (LTV) loans. This means the maximum loan on a property would be 75% of the after repair value of the property. Our typical LTV is 70% or less. This means if the after repair value of a house is $100,000, we could buy it for $70,000 including the cost of repairs. That’s a 70% loan-to-value. This gives the lender a minimum of a 30% equity position in the property.
Q: Do I need a lot of money?
A: Most loans are $50,000 to $100,000. If a private lender has less than $50,000 to lend, we may be able to arrange for a second mortgage with the first mortgagee’s consent. The two mortgages will not exceed 70% LTV.
Q: Who handles all of the details?
A: We will. It’s our job to get you proper documentation and protect your interest. All of this costs you nothing. We pay all closing costs including the mortgage document preparation.
Q: How do I get paid?
A: We are flexible to meet your needs. However, we typically offer 13% interest paid every 12 months or 10% interest paid monthly. Call 407.538.7150 to discuss your options. We would be happy to work with you!
Q: Is this a long term loan?
A: It can be any term you want. We typically want a one to four years, but some loans can be structured for shorter or longer terms. You can pick a term that suits your needs. It’s your money so it’s your choice.
Q: What if I want to liquidate?
A: We will attempt to find another lender to whom the loan can be transferred. However, you should not make mortgage loans if you feel you might need to liquidate before the term of the loan is satisfied. But, unlike a bank CD, there is no penalty for early withdrawal. Just call and we will handle all of the details.
Q: How safe is my loan?
A: Since we buy property at a very low loan to value, your money is quite safe. Your money can grow two, three, or even four times faster than what you may be earning now plus you maintain in control.
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 potentially produce staggering yields. Also, all costs are to be paid by the borrower, not you!
Q: Is this a mortgage pool?
A: No, one lender for one mortgage. You get a lien against the property. You act as the bank. In some cases, there may be a first and second mortgage with two lenders. The combined LTV will not exceed 70% of the appraised value.
Q: How do I use my IRA’s or pension plan?
A: Making real estate loans is a widely accepted use for IRA’s and pension plans. Not only can you loan money that has is unavailable for to use, but you can make it grow rapidly…tax deferred!
Since Uncle Sam isn’t taking a bite out of your profits until you draw out the money, more money is left in the account to compound and grow. The results can be staggering. In order for you to use retirement accounts for a loan, they must first be administered by a “Third Party Administrator” or TPA. This TPA is set up and approved to administer your loan activities. This means you will probably have to transfer your plan to one of these TPA’s unless your present administrator is set up to do that. When your TPA is located, simply send the transfer form to them and they’ll do all of the work for you. Once you’ve done that you’re ready to make loans!
When we’ve selected a property, you simply notify your TPA where to send the check for the gross amount of the loan. It’s that simple. There should be no cost to you except your plans administering costs. Some TPA’s will even collect periodic payments for you and deposit them into your account. We highly recommend Entrust Retirement Services as our preferred TPA.
If you have any questions regarding your plan or its administration, contact your plan administrator. If you need help transferring your IRA please call Scott at 407.538.7150 or Entrust at 407-ENTRUST.
Q: What are my options if you don’t pay?
A: There are several options. We could liquidate the property to pay off the mortgage. We could ask to restructure the note. For example, let’s say we are behind on payments to you. You could let us continue to make regular payments and make an extra payment on the arrearage in addition, 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. We could sign over the deed to you on the house. This is an opportunity for you to get a house at a greatly discounted price. If this happens, you can list the property with a Realtor and sell the house and keep the additional profit. You could also simply foreclose. You could turn the mortgage and note over to an attorney and let them handle everything. If you did wind up with the house it could be sold immediately at a liquidation sale price and could potentially produce a profit over and above the balance on your loan.
Q: What kind of documents should I receive?
A: After closing, you will receive a closing package with the following:
Original mortgage note
A copy of the mortgage. The original will be recorded and then sent to you.
Title insurance commitment – A Policy will be sent later.
A hazard insurance policy naming you as the mortgagee
HUD-1 settlement statement
If you may be interested, please fill out our form today or call 407.538.7150. We would be happy to talk with you! While most people are complaining about the low rates they are getting on their CD’s and other low paying investments, you could be receiving a return of 10% to 13% all of the time! Private lending is an incredible way to build wealth quickly. Please call anytime if you have any additional questions.