Frequently Asked Questions
WHAT IS PRIVATE MONEY LENDING?
Private money loans are made by non institutional individuals to Real Estate Investors. The Loans are secured by a note and a deed of trust on real property. Lenders can also earn high interest rates — generally 4 or 5 times the rates they can get on bank CDs and other traditional investment Plans.
HOW IS THE MONEY USED?
On a home purchase requiring renovations. The cost will be allocated to the purchase price, renovations, holding costs, resale costs, and also a small buffer for unexpected expenses.
WHY DON’T YOU GET A TRADITIONAL LOAN?
There are many reasons, but the primary one is: time and negotiation leverage. Many of the homes we are purchasing are in need of a quick sale within 10-21 days. A traditional bank requires 30-45 days to close a loan. Also, our leverage is far greater when we purchase using cash instead of financing. Many traditional home sales fall out of contract because of financing issues; and this allows us to negotiate a much lower purchase price and reduce our risk. Lending guidelines are also continually changing. Most new requirements include applications, approvals, and strict investor guidelines. They also limit the number of investment properties that can be purchased by one company.
HOW CAN YOU AFFORD TO PAY SUCH HIGH RETURNS?
We make our money on the purchase, and this allows us to purchase 20-35% below a retail purchaser. This instantly creates thousands of dollars in equity. Typically, we also cut out the middleman in a transaction, i.e., agent commissions, mortgage broker fees, loan fees. Our attorney costs are also lower, because there is less paperwork to review, and we use the same attorney on a regular basis.
ARE YOU REALLY HELPING SELLERS?
Absolutely, with your cash funding, we can offer something very few buyers can. We are buying within their time line in as little as 10-21 days. Knowing that we’re going to renovate the home and purchase it in as-is condition is a very important factor to most sellers of distressed property. The seller also won’t have to pay any additional fees.
WHAT IF THE MARKET GETS WORSE AND VALUES GO DOWN?
This is a great question and valid concern. However, our strategy is not to speculate 3 years down the road. Our goal is to purchase quickly and sell even faster. Most of our projects are complete in 1-2 months and will be sold in 2-4 months. The market doesn’t tend to shift that dramatically in a matter of months, it’s typically a longer process for an area to decline. Remember, we’re buying in strategic areas where inventory is already low and demand is high; this greater minimizes our risk.
WHAT INTEREST RATE DO YOU TYPICALLY PAY YOUR PRIVATE LENDERS?
Most of our lenders are paid between 8-12%. Our rates will fluctuate very little all depending on the purchase price and rehab involved. The lower the purchase price, we can sometimes afford to pay a little higher rate to make sure it’s worth our lenders time.
HOW LONG WILL MY FUNDS BE HELD?
The majority of our loans are set up on an 8-12 month note, but 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 approvals. This will cause delays. But we account for all of those details upfront and will give you an estimated time frame for the return on your investment beforehand.
WHAT IF I’M ON A SHORT-TERM NOTE AND SELL THE HOME AFTER ONLY 1 MONTH?
It’s extremely important to us that we do not waste your time. However, occasionally, situations may occur where we find a buyer immediately. In this scenario, we provide you with two options: we can either move the note to another property, or provide you with a minimum of 3 months interest. Most investors see the strength of our purchase ability at that point, and simply move the note to another property.
WHEN WILL I RECEIVE PAYMENTS?
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.
IS THERE A GUARANTEE ON YOUR INVESTMENT?
No. There is no government backed guarantee 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 (essentially foreclose on us). You have to remember that we plan for the worst, 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 originally estimated.
WHO BUYS INSURANCE?
We do. We pay for a title search and also a title policy on the home, just as we would in a typical transaction.
WHAT KIND OF INSURANCE POLICY DO YOU GET ON THE HOME?
If we purchase a renovation, we get a builders risk policy (Vacant Dwelling Policy). In case of any damage, insurance distributions would be used to rebuild or repair the property, or to pay you off.
HOW MUCH IS IT GOING TO COST ME TO LEND TO YOU?
It is our policy to pay for the closing agent, document preparation fees, notary fees, overnight mail fees, bank wire fees and recording costs. We do not charge any fees or commissions to our private lenders, so that your entire investment goes to work for you.
WILL MY MONEY BE POOLED WITH OTHER INVESTORS?
No, we do not pool funds. Your funding will be tied to one piece of property secured by a deed of trust.
IF YOU DEFAULT ON THE LOAN, HOW DO I ACQUIRE THE PROPERTY?
In this unlikely scenario, we would simply transfer ownership of the property to you. If for any reason we did not (or could not), then you have all the legal rights of a secured lender. The best way to legally protect your interest in case of a default would be to hire an attorney. They normally would seek to retrieve your investment, any unpaid interest, any collection costs, all your attorney fees and maybe even more. An attorney could advise you of whether or not it makes sense to foreclose on the property or seek ownership to protect or recoup your investment.
Thank you for taking the time to visit our website. At Ray’s the Roof Real Estate Investments, LLC we strive to achieve transparency and professional integrity in everything we do. We never accept more than 10% of anyone's net worth for investment purposes. We look forward to hearing from you and answering any additional questions you may have. Feel free to contact us at your convenience. Have a great day.