We all know the world’s financial markets are in chaos. Stocks and mutual funds are unpredictable and riskier than ever. CDs, Bonds and Money Markets are flat lined. Real Estate is an investment vehicle where YOU are in control.
Smart investors are putting their capital in to physical real estate, and as a private lender, you can benefit from the best real estate buying opportunity in history – without buying, fixing, renting, or selling a house yourself.
What Is Private Lending?
A private lender is an individual who provides money for real estate investments. The money can be used to purchase residential, commercial or rental real estate or to supplement funds to cover down payments or renovation costs.
The benefits to the private lender are enjoying the security of asset-based lending and receiving returns that are typically better than those provided by traditional investments.
How is the Private Lender secured?
A Private Lender is secured by mortgage and note on the property which is serving as the foundation for the transaction. The emphasis in non-traditional lending is on the collateral, therefore measures are taken to protect the interests of the lender in a given property or project.
What are the components of Private Lending transaction?
A private lending transaction usually include the following elements:
- Promissory Note – defines the terms and conditions under which the private lender is willing to lend money and under which the borrower agrees to repay.
- Mortgage – conveys an interest in specified property as security for the repayment of the money borrowed.
- Deed in Lieu of Foreclosure – enables the Private Lender to expedite possession of collateral real estate by pre-arranged voluntary agreement.
- Title Insurance – protects an owner’s and/or a lender’s financial interests in real estate against loss due to title defect, liens or other challenges
- Hazard Insurance – safeguards the interests of the Private Lender.
What sources of funds should one consider for Private Lending?
Traditionally, lenders use savings, lower-interest lines of credit, and self-directed Individual Retirement Accounts (IRA’s). Many lenders have found it advantageous to divest of non-performing and/or low-performing assets as they seek to maximize their investment returns.
What is the standard loan term?
There is no standard loan term, but most average 12-18 months. The term of a loan is often determined by a number of variables including scope, complexity, market conditions and planned exit strategies.
What is the standard loan amount?
Typically, a Private Lender will need $100,000 to begin investing, but the amount varies greatly and is primarily dependent upon the size of the project.
Why is Private Lending a good strategy for a borrower?
Generally speaking, the borrower is attracted to the speed and ease of funding offered in a private lending scenario. The demand for non-traditional loans arises in those gaps that exist between traditional institutional lenders and a given real-estate marketplace such as the need for speedy property acquisition (foreclosed, estate settlement, liquidation, auction) or when the characteristics of the purchase do not allow for traditional lending.