The reason private lending is so compelling is that it is passive income and there's minimal time involved for the private money lender. There's no dealing with tenants, no manual labor used to renovate properties, and no dealing with unscrupulous contractors. You will have the sense of security that your money will be returned to you soon, with a sizable return on your investment that is secured by marketable and liquid real estate.
We, the borrowers do the hard work for the private money lenders. Finding the properties, putting our time and energy into renovating, marketing and selling them.
Multiple loans can be made at one time, profits are tax-free, there is no cap on earnings, and you basically earn money while you sleep. There are no government-backed guarantees on these privately held real estate notes; you're deriving protection from the equity in the real estate.
If at any time we were to default on the note, you have the legal right to take the home (virtually foreclose on us). However, we are always prepared for the unexpected, and our homes have thousands of dollars of equity in them. So in a worst case scenario, we just don't make as much profit as we initially hoped for.
Investment Terms & Conditions
Typically, we pay one large lump sum at closing on a short-term note. This is much easier to manage for both of us—especially if we're working out of a retirement account. On a longer note, we will pay monthly, just like a typical mortgage.
1st or 2nd Lien Position
The Investor, as "mortgagor," has the right of first lien holder and Power of Sale on the property. The 1st lien position is placed behind a senior mortgage. These are also known as the "first and second mortgage." The second mortgage is a junior lien because it's in 2nd position. The senior lien, or first mortgage, must be paid prior to the 2nd lien. While we do not have a minimum investing amount, we find that $80,000 to $150,000 are sufficient amounts to make an investment worthwhile when working with private lenders. When first investing with us, a lower initial investment amount may be agreed upon to ensure you're comfortable when working with our company. We never accept more than 10% of anyone's net worth for investment purposes.
The majority of our loans are set up on an 8 to 12-month note; however, it depends on the size of the project. If we are doing a tear down and rebuild, we will have to wait on the county inspectors for many approvals, thus causing delays. We account for all of those details upfront and will give you an estimated time frame for the return on your investment. We do not pool funds—your funding will be tied to one piece of property secured by a deed of trust.