There’s no doubt that real estate investing is astute and it can be highly remunerative for anyone given the property foundation, network, and learning. It is highly advisable for real estate investors to be smart and prudent with their money. Yes, as an investor you have the ability to reinvest into numerous real estate properties but finding another option will not be bad after all.
What option can this be?
Private lending isn’t the most popular option investors take. It also offers securities and promising profit as with real estate investing.
Private Money Lending Explained
Private money lending happens when an individual lends his own capital to be borrowed by another investor while procuring the loan with a mortgage (real estate). In reality, private money lending provides a substitute to conventional lending institutions like banks.
Advantages of Private Money Lending
Private money lending allows you to safely generate “mailbox” money, secured by title to real estate collateral! This is about as passive as it gets!
A private lender provides capital to professional real estate investors for the purchase of real estate or to supplement funds for covering down payments, renovation costs, or closing costs. This is also known as mortgage lending, peer‑to‑peer lending, self‑directed lending, and non‑traditional lending.
This is a way of cutting out the middleman making it a win-win for the investor and borrower (flipper). Private money investors are given a first‑line position mortgage and promissory note that get recorded at the county courthouse, making this a secure, collateral‑based investment.
This is your opportunity to completely hands-off while partnering with people I know, like and trust.
No need to worry about tenants, buyers, or contractor hassles!
What are Normal Terms for Private Money Lending?
If someone offers you 12-15% interest rate does not mean its a good deal. The sucker could be you!
Think about it! Will a reliable operator with a good track record pay investors more than 8-10%? Most people in my mastermind group that I am part of, borrow money at 5-8%.
Below are some basic guidelines but be aware that that Cap rates go up and down from time to time based on the Fed rates.
Lower Risk: 1st Lien loans up to 80% of the Purchase price & 70% AS IS value (what you could realistically sell for now)
- 2-3 points
- 10-12% annual rate
- Average loan = 75% of the purchase price loan
- Target annualized ROI = 16-24%
Moderate Risk: 1st Lien loans up to 70% of ARV
- 4-6 points
- 18%+ annual rate
- Target annualized ROI = 28-36%
Moderate-High Risk: 2nd Lien loans up to 75% of ARV
- 7-15 points
- 18%+ annual rate
- 1st + 2nd liens up to 75% of ARV
- Target annualized ROI = 40-50%
Note: There are a lot of outfits out there that find a newbie house flipper and “white-labels” that persons high risk loan as their own. Don’t be fooled by this game!
Most reliable flippers can complete a project in 4-6 months from purchase to sale. A good rule of thumb for construction is that crews will work at a burn rate of $1,000 per day.
How These Deals are Funded
✔️ Traditional and Roth IRAs, Pensions, SEPs, Solo401Ks, and other retirement accounts
✔️ Lazy cash sitting in the bank
✔️ By liquidating unsecured investments such as stocks
✔️ Leveraging their Homes Equity at 4% to earn generous returns via a HELOC
✔️Personal and Business Lines of Credit to arbitrage the interest rates
How Does It Work?
STEP 5 – You get your interest just like a bank charges you, except this time you are the bank!
TOP MISTAKES in Private Money Lending
1. Never buy a note on something you wouldn’t want to own. Consider the worse case scenario where if your borrower defaults you take it over. You might need to have a team there or some contacts local that you trust.
2. If the loan goes into default, take action immediately start the timeline just like an eviction.
3. Do not loan money to someone you would feel uncomfortable foreclosing on such as a friend or relative.
4. If you are lending money on repairs you might want to originate a separate note with a higher interest rate with separate collateral as to not encumber the original asset with debt that you put you in a lower leverage position if you ever have to collect.
5. Beware of borrower robbing Paul to pay Peter. Collect monthly installments so you know if the borrower is getting into financial trouble.
6. If you don’t know what you should get in terms of interest rate or don’t know how to evaluate the risk get a mentor or hire a 3rd party professional who will give you their opinion of the deal. Don’t do a sucker deal even if they are offering you 12-15%+.
7. Get lender’s title insurance for the loan. The purpose of title insurance is to shift risk away from you to the title company when creating a real estate note.
8. Verify that there is property insurance on the deal and that you are named as an additional insured. Even though it’s a remote chance of any issues it costs very little to have you covered. Plus you as the lender often has more to lose than the flipper.
9. Insist that the borrower provide you with evidence of payment when property taxes, insurance, and homeowner’s association fees become due and are paid, or when possible have your loan servicer set up escrow service to pre-collect the required funds.
10. Get a personal guarantee if you are lending to an entity or to an individual with some weakness. Or, have the borrower execute a Deed in Lieu (DIL) of foreclosure and send it to you or your custodian. Should the borrower default, you can record the DIL to save the expense and time of foreclosure.
To get first access to all lending opportunities in text “money” to 314-665-1767.
To get first access to our lending opportunities in Kansas City text “moneykc” to 314-665-1767.
“One of the first things I looked into to get away from Wall Street were the many Crowdfunding sites out there but I just was not into paying another middleman to give me a false sense of security and take a chunk of the profits from the operator and me the investor. Text the word “money” to 314-665-1767. These lending opportunities are exclusive to Hui Deal Pipeline Club members to power operators I trust and will put my brand on the line with.”
“My $40K loss in my first Limited Partner role back in 2013 taught me to not work with just any guy you don’t know, like, or trust. Problem is for most investors they just don’t have many options and they jump into a deal out of scarcity. Introducing Simple Passive Lending for access to 1st lien short-term lending opportunities backed with a secure note to a property. For more info, text the word “money” to 314-665-1767.”
“The Hui Deal Pipeline Club is a free investor club where we work together to crowdsource deals and do due-diligence together. Most members in our group graduate to Passive Investors but some investors who I have built a relationship over the past years have graduated to active operator status. To back our own members in something they have found their true calling in I am rolling out Simple Passive Lending to learn more text the word “money” to 314-665-1767.”
- SPC045 – Fundamentals – Private money lending (PML) – https://simplepassivecashflow.com/podcast-45-fundamentals-private-money-lending-pml/
- Webinar – What is Private Money Lending? – https://youtu.be/dShEiWnMCHw
Frequently Asked Questions (FAQs)
Who’s the manager of the monies and transaction. And capital back after one year? K-1?