Private Money Lending FAQs
To Main REA Capital Mangement page:
WHAT IS PRIVATE LENDING?
Q: What does it mean to become one of our private lenders?
A: When I desire to borrow money by offering a property as collateral, I give my private lender an opportunity to make the loan and earn high-interest rates that are better than average returns you can get on bank CDs or other traditional resources.
HOW IS THE MONEY USED?
Q: How will I be using your money?
A: As a professional real estate investor, I need to fund new purchases, sometimes do renovations and fix up properties, plus cover the other costs associated with buying and selling houses for properties we already own and manage. Sometimes we want to convert some of our equity into cash without selling the property. This cash may be used to fund our house-buying business, pay off other real estate notes that come due, and handle other cash needs.
DOCUMENTS AND PAPERWORK
Q: What kind of documents and paperwork will I receive?
A: Your closing packet should include: an original promissory note, a copy of the deed of trust or mortgage, a copy of the property insurance binder naming you as the mortgage, and a title insurance policy insuring you against any title problems.
Q: If you default and don’t keep your promises, how am I protected?
A: In this unlikely event I would simply transfer ownership of the property to you. You would own the property at 75% of its value, therefore, making it easy to for a quick sell at a profit plus you have all the legal rights of a secured lender.
Q: If you sell the property on a lease option basis and the tenant/buyers trash the property, what happens?
A: It’s my responsibility to protect the property and your collateral. My crew would take care of any repairs, and you never have to get involved.
Q: How do I get started becoming one of your private lenders?
A: Once I know how much you want to invest at a high rate of return, when those funds will be available and how long of a term you are willing to do, I will begin looking for a deal for you. When I select one that meets your goals and investment objectives, you will receive all the details on the property.
Q: Would you possibly work with other people I know that might be interested in being a Private Lender?
A: It is my policy to work with people I already have an existing relationship with and with whom they refer. In other words, I work with folks “By Referral Only” You can certainly refer potential lenders to me. I’ll explain the program and learn about their investment objectives and goals. Once I get to know them, there is a possibility they can also become one of my Private Lenders.
Let Us Help You With Your Investments
COST AND INSURANCE?
Q: Do you provide title insurance?
A: Absolutely! I never buy a property without title insurance, period; however, if I am refinancing a property, there would be no need for a new title policy.
Q: Are there any upfront costs?
A: I pay for all closing costs, so your entire investment goes to work for you I will pay for the closing real estate attorney, document prep fees, notary fees, overnight mail fees, bank wire fees, and recording fees. There are no charges or fees whatsoever incurred by you.
Q: What happens if the property burns down?
A: A valid hazard insurance policy is always in place to protect against causalities. You’ll be named as a mortgage. Insurance distributions would be used to rebuild or prepare the property or used to pay you off.
Q: Will my money be pooled with other investors?
A: No. Your funds will fund one real estate note secured by a deed of trust on a property with sufficient equity as protection. If Yes, you are part of our VIP multifamily program, and this will be different and part of a private placement memorandum. If you are part of the VIP program, we will discuss one-on-one.
Q: What is a junior lien or second mortgage?
A: It’s a loan secured by real estate that is positioned behind a senior mortgage or first mortgage.
Q: What is my minimum investment?
A: My “First Position Private Lenders” usually need a minimum available to invest $100,000 for most deals. However, there are some deals that come along now and then where a lower amount could be accepted. My “Secured Position Private Lenders” usually need a minimum of $30,000.
Q: Is your investment program insured by the government?
A: No. There is no government-backed guarantee on these real estate notes. However, your protection and security is the amount of equity in the property that secures the note. I will not allow my private lenders to loan more than 75% of the property’s value securing the note. That way, the private lender always has at least 25% equity cushion in the property.
Q: Why don’t you go to banks or mortgage lenders?
A: Banks and other lenders require application approvals and must follow guidelines imposed by the banking industry. Plus, there are limits to the number of loans they can make to any company or investor. On top of that, the time it takes for the approval process is never certain. I can move much faster without these limitations by using private lenders. This allows me to negotiate more profitable deals while offering homeowners a quick and easy sale without new loan ordeal breaking contingencies.
Q: How can I afford to pay such high rates?
A: I make my money by providing valuable services to sellers, buyers, renters, and private lenders. By cutting out the middleman, I can avoid the costs normally paid out for real estate commissions, mortgage broker fees, legal fees, and property management fees. I also know how to sell homes at a full appraised value and avoid making price concessions. I can get a home occupied fast to avoid holding costs and know how to fix up and maintain properties for less money than most people pay period I calculate my offers on properties so that buyers and sellers get a great deal. At the same time, a minimum profit of 25,000 to $50,000 is earned between the time of purchase and sale. I won’t just buy a property unless it makes sense for everyone involved. The deal has to work for all parties.
RATE AND TERM
Q: What interest rate do you pay?
A: That depends on the deal at hand, what works for you, and what works for me. It will be much higher than any CDs or traditional investment period; it also depends on the current market rates.
Q: How long will my investment funds be tied up?
A: Most of my private loans are set up from one to a five year term period however, it depends on what the private lender wants and needs and what the deal is. So depending on our plan for the property, we might be able to offer you a shorter term or we may ask if you are willing to commit to a longer term deal. Regardless you always decide what term works best for you. If it fits into our program, we’d be happy to see if there is a fit.
Q: What if I commit to a longer-term and then need my money sooner?
A: My policy is to pay off or replace any private lender who requests an early payoff whenever possible. Sometimes an early partial payoff meets the lender’s needs, allowing the rest of their money to continue to earn higher rates. I ask you to give me advance notice. Preferably 90 days. So we can do whatever we can to meet your request. I would attempt to meet such a request by refinancing the property, selling the property, or, most likely, having another one of my private lenders take over your position. There will be a 5% fee for the outstanding principal.
Q: Will I earn interest for the entire term of the note?
A: Your interest is fixed and locked in for as long as the note is out. However, I may sell or refinance the property before the full term is out. You’ll always earn your note interest until it’s paid in full. But I do have the right to pay off the note early.
Q: What if you pay me off only a month after I have an invested?
A: I understand you might be liquidating investments or forgoing another investment program to get a higher rate of return. Therefore I agree in writing you’ll receive a minimum of three months of interest. So if I need to pay you off sooner than I expected I would either move your mortgage to another property by substituting the collateral or pay you off in full including a minimum of three months of interest earned.
Q: Will I receive monthly payments?
A: Most of my private lenders prefer letting the interest accrue and getting a big check when the property cashes out. A few private lenders prefer payments. These lenders are usually retired and have cash flow needs. I am open to working with you for the best fit. SD IRA, 401K, and HSA investors usually would rather have their money all at once when the deal is complete as they can’t use it until they are at least 59 1/2.
Q: Am I concerned about housing prices going down today?
A: No. We are prepared to hold properties for two to three years; that way, we’re not as concerned about short-term price fluctuations and home prices as investors are. Most of our investing plans are determined by the income we expect the property to produce now and in the future.
To main REA Capital Mangement webpage.