HOW YOU CAN SAFELY INVEST YOUR MONEY IN TODAY S MARKET THROUGH PRIVATE MONEY LENDING

Size: px

Start display at page:

Download "HOW YOU CAN SAFELY INVEST YOUR MONEY IN TODAY S MARKET THROUGH PRIVATE MONEY LENDING"

Cameron Stephens
5 years ago
Views:

1 HOW YOU CAN SAFELY INVEST YOUR MONEY IN TODAY S MARKET THROUGH PRIVATE MONEY LENDING

2 Legal Notice Copyright Notice All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical. Any unauthorized use, sharing, reproduction, or distribution is strictly prohibited. Legal Notice While attempts have been made to verify information provided in this publication, neither the author nor the publisher assumes any responsibility for errors, omissions, or contradictory information contained in this document. This document is not intended as legal, investment, or accounting advice. The purchaser or reader of this document assumes all responsibility for the use of these materials and information.

3 Table Of Contents 1. Introduction 2. What Is Private Money Lending 3. A Recent Case Study 4. Rules To Follow When Investing 5. Rules To Follow When Selecting A Borrower To discuss with us your Short/Long term investing goals and to find out about our available Private Money Landing Opportunities call our office Ikon Realty, LLC (904) ext 6

4 Introduction: If you re not consistently getting big returns on your current investments such as your IRA, Savings Account, or other investments you re about to learn a smarter way to invest in today s market. (Especially in today s market.) This method is has been used in real estate and has been used successfully for years by a few investors who can make money like banks do. If you have funds to invest but know that the stock market and other traditional investments are not the safest decision right now, consider the world of private mortgage lending as a smarter investment tool. Private mortgage lending could offer much higher rate of return, from 10% - 15% and backed by a tangible asset--real estate. The best part is you make the rules when it comes to terms and interest rates, so you do have control over how you money is being invested. Your borrowers are real estate investors who come across great deals at deeply discounted properties, and they need to fund the purchase fast or risk missing out. These properties are often in need of repair for them to sell at a great profit. This is called rehabbing

5 These rehabbers cannot go or choose not to go with traditional lenders for various reasons. Instead they choose to use private money from lenders who understand the real estate business and can fund deals quickly. Because they need funds quickly and for often a short amount of time these rehabbers are more than happy to accept loans with larger interest rates and terms that favor the lender. This works out to your advantage because now you take profit in today s all time low real estate market without leaving the comfort of your home. In this situation you are the bank and they have all the big buildings for a reason. You are lending money just like a bank would and your money is in a tangible asset. Plus, rehabbers only need to borrow around 60-70% of the homes after repaired value to fix up a property, so the worst scenario is your borrower defaults on the loan and you have a deeply discounted house. Since you choose who borrows from you and can decided whether or not to lend for a particular house this could work out in your favor. Because you are only lending out a maximum of a 70% loan to value ratio there is a good layer of equity to work with if you ever need to sell yourself. Traditional banks are getting in trouble these days because they are lending out up to 100% of the homes value and have no way of getting out of the deals themselves when they go into default.

6 Many of these investors only need to borrow for short periods of time to fix and resell or refinance. They do not need long 30-year mortgage. Therefore your capital can work for you in short periods at a much higher rate of return than a traditional investment of that same time period. In fact, it s up to you to decide if you want to invest in a particular property. The only decisions you really need to make is if this is where you want to put your capital. You then agree to terms with your borrower. To make sure this process is smart you re going to want to make sure an attorney or title company, or escrow company handles all the paperwork on your behalf as the closing agent. The good thing about this is traditionally you can have the borrower pay all costs involved out of the proceeds. Never sign a check to the real estate investor yourself, make sure this is all done through a professional third party to handle the closing. To further protect your investment you ll also want to make sure the real estate investor gets title insurance and property insurance with your name as the loss payee to protect your investment. After closing and you have provided the funds, the closing agent will send you all the paperwork including the mortgage or trust deed with you in the first position. This is a smart investment and can also be used to earn high returns for your retirement plan to grow tax-deferred or tax-free using a self directed IRA. As a private

7 mortgage lender you have your money working for you in your control, growing your money in a way most people don t know exist. While others are complaining about the current economy you can take advantage of this boom time for real estate investors offering short term loans and high rates for consistent high yields on your investment.

8 What Is Private Money Lending? First off let us start with some definitions. What is private money lending? Private money is a very common term used in reference to the act of lending money to a company or individual by a private person or organization. This is very useful to people and organizations that have non-traditional qualifying guidelines. There are higher risks associated with private money lending for both lender and borrowers. There are also a lot less restrictions and qualification is frequently done with a conversation and a handshake between lender and borrower. This is an age-old way to purchase real estate. It is very lucrative right now because single-family homes and investment properties are at an all time low in price. A couple years ago, you would have to invest thousands of dollars in rentals just to make them cash flow. Now though, an REO, short sale, and many a motivated seller are available for those smart enough to see the opportunities. The hard part right now is being able to get a bank loan. Banks want to see at least 20% down and you have to have excellent credit, traditional employment, and no longer are there No Doc Loans for those people who are self-employed. Also if the property you want to purchase has any problems, FHA will not loan on it. You have to go conventional then the rates are higher, and more money is required down. For those of us that usually invest our money into the stock market, this time also opens up a golden opportunity to instead invest in real estate by being a private

9 moneylender. It is not nearly as difficult as it may seem on the surface. Think about the last month of your life. Have you come into contact with someone that was thinking of buying a house, or talked about refinancing their mortgage? That is one of the best ways to find the properties and people you want to invest in. For those of you who would never lend money to their friends and family don t worry there are plenty of opportunities to invest and remain unknown to the borrower.

10 A Case Study If you know today s current real estate market and lending situation you can probably guess the frustration, and heartache of buyers trying to conform to the bank s frequently unusual and confusing list of rules and regulations. Here s a perfect example. Let s call her Carol Carol is an excellent investment. She has worked at the same job for 10 years, in the same field for over 20 years. When she went to Countrywide, who are stringent on their guidelines, she was an instant approval. Unfortunately the house was not. It was built in 1947 and was lacking a crawl space and vapor barrier underneath it, along with many other small easy fixes in order to qualify for a loan. It was the only house in the town she grew up in, which she could afford. My mom-in-law was devastated at the news. Just about this time a sold their huge 65 acre property to downsize into a residential home. They had made some money on the deal and wanted to invest it. They arranged to tour the home Carol wanted, thought it was cute and a very good investment. They knew their investment of $90,000 would go to purchase the property, for $70,000 and $20,000 would go to repairing the property up to bank standards. They agreed to a 5 year balloon payment and interest only payments of $565.

11 Six months later Carol completed the required work and is enjoying a wonderful house. She was smart and made the changes before she moved in. Now the house is completely ready to refinance into a traditional loan. Not only did she save and older home from being demolished she improved the whole neighborhood, and her investors are making lots of money! Now what is the worst-case scenario when it comes to being a private moneylender? Well it would be that the borrower stops paying the mortgage and you are stuck with a property you don t want and now have to pay for every month. The good news is, most borrowers come into the deal with some money invested. When you are loaning on these properties, keep the loan to value in your favor, so if you needed to you could hire an agent to take care of selling it. It s probably a prudent idea recommend to not loan more than 70% loan to value. For instance, a home that is currently on the market for $100,000 may be worth $120,000 but the property is an REO and requires new paint, new flooring and needs a general clean up. The cost of paint, flooring and cleaning comes to $1200. So if you paid $100,000 for the property and have invested $1200 for repairs, you have $18,800 worth of equity. If you had to put that house on the market now you could sell it for $120,000, which gives you $18,800 to pay an agent and cover utilities. Remember also because you improved the property, your agent might recommend raising the price to reflect those changes. It is amazing what completely painting a house inside and out and general clean-up can do. It makes a home clean and ready for a new buyer.

12 There are some important things to look out for when choosing your investment property, and important steps to take when choosing a borrower.

13 Rules To Follow When Investing: Follow these rules to be successful with your investment. Must have instant equity. Make sure the property has plenty of room between value and price. You must protect your investment money, avoid risking it on a property priced at or above the market value, it is not worth the risk. True you will be paid well in interest, still if you do NOT want to manage a rental, choose properties that can easily be re-sold. You must have a clear and concise plan of action and a good attorney!!! Put everything involved in the deal on the loan papers. If the borrower is required to put a certain amount of the loan into fixing defects on the property, include these requirements on the loan documents and specify the date the work is to be completed. If the borrows fails to complete the work put in the ramifications, a late charge, spike in interest rate, you can even go as far as calling the loan due and payable. If the borrower is not able to come up with the whole amount you can foreclose and take the property back citing specific performance. My point is to keep excellent track of who is supposed to do what in the transaction, and make very sure it is clear and admissible in court. You want it clear enough you can show a judge and they will understand exactly what was agreed to.

14 Must be able to be financed by a traditional mortgage broker or directly from a bank. It is ok if you finance a property that needs work. In fact that is one of the best ways to get an excellent deal. It s highly recommend though, doing any large jobs before the renter moves in. For instance if the investment needs a foundation, that is not something that can easily be done later and is required for a traditional mortgage. Make sure and factor that in to the deal. If the property needs paint or general clean-up don t worry about it. The borrower will paint and clean as they go, and would probably need to be done before sale anyways. Anything big that needs fixing, fix it first! You don t want to be needing to sell and only able to market to other investors, keep the owner occupied market open. Not only will you be more likely to resell the property, you will get a much better price. Don t let your emotions get in the way! The only numbers that matter are the comparable sales, comparable listings, and the amount of money you are making on the deal. Don t let attachments to the house or the borrowers get you into financial trouble. It is NOT worth it for you or them. Always use an escrow officer!! We can t stress this enough. For the couple of hundred dollars it will cost you, not only will you have a professional handling the closing of your investment you will have title insurance! Then you can be sure the property you are buying has a clean title, doesn t have past liens or

15 encumbrances, and all the paperwork is structured exactly how you and the borrower have agreed upon. Then there is no confusion. Always use a neutral party to keep track of payments made. An escrow company usually has the option of having all payments the borrower makes go into an escrow account, then are released to you either on a set schedule or can be accumulated in that fund, which ever you prefer. It is very cheap usually under $5 per month, and it keeps everybody on the same page. Finally, Make sure you review all of this, even this report with an attorney before making any financial decisions. Laws and restrictions are changing all the time, so make sure you get the latest information with a qualified local attorney.

16 Rules To Follow When Selecting A Borrower: Follow these rules to be successful With the person you choose to invest in. It is true if the borrower should default you have security because you will then own the property. It is also true repossessing a property is a huge hassle and very time consuming. By using these simple techniques you will stay out of a courtroom, and still make lots and lots of money for you time and investment. Know your borrower. At least the basics. What kind of job do they have, how long have they worked there, how long in that field of work. I don t focus too intensely on credit, I do always check it though. If they have some dings that is to be expected. If the borrower didn t they would probably be able to get a traditional loan at a much cheaper cost to them and wouldn t need my investment. I also always recommend to my clients to do a background check on every borrower. You can pay for one using the internet or go down to your local courthouse for free and do a local check. Anytime they have been sued in that county, or been arrested it will be on the background check. This holds a lot of weight when it comes to the decision of whether to invest in this person or not. Know their plans for the property. If it is to be their primary residence they will have a much greater risk than if it is only a rental to them. If they plan on flipping it, I like to include a provision they provide me with a detailed plan of how they intend to accomplish this goal. And exactly what they plan to do if after a certain amount of time on market the property does not sell. Are they willing to

17 be landlords? If not how do they intend on paying the mortgage every month? Very important questions to be answered, and if they lack the necessary knowledge to respond to these questions with a well thought out and precise answer it is better not to invest with them. You will end up doing most of the work because they lack the expertise to do so. Remember there are lots and lots of opportunities for private money investors to make money through real estate. There is NO Reason to risk your money unnecessarily. By following these simple guidelines you will be very successful being a private moneylender. To discuss with us your Short/Long term investing goals and to find out about our available Private Money Landing Opportunities call our office (904) ext 6 EARNINGS & INCOME DISCLAIMERS We request that you carefully read this. ANY EARNINGS OR INCOME STATEMENTS, OR EARNINGS OR INCOME EXAMPLES, ARE ONLY ESTIMATES OF WHAT WE THINK YOU COULD EARN. THERE IS NO ASSURANCE YOU'LL DO AS WELL. IF YOU RELY UPON OUR FIGURES, YOU MUST ACCEPT THE RISK OF NOT DOING AS WELL. WHERE SPECIFIC INCOME FIGURES ARE USED, AND ATTRIBUTED TO AN INDIVIDUAL OR BUSINESS, THOSE PERSONS OR BUSINESSES HAVE EARNED THAT

18 AMOUNT. THERE IS NO ASSURANCE YOU'LL DO AS WELL. IF YOU RELY UPON OUR FIGURES; YOU MUST ACCEPT THE RISK OF NOT DOING AS WELL. ANY AND ALL CLAIMS OR REPRESENTATIONS, AS TO INCOME EARNINGS ON THIS WEB SITE, ARE NOT TO BE CONSIDERED AS AVERAGE EARNINGS. TESTIMONIALS ARE NOT REPRESENTATIVE. THERE CAN BE NO ASSURANCE THAT ANY PRIOR SUCCESSES, OR PAST RESULTS, AS TO INCOME EARNINGS, CAN BE USED AS AN INDICATION OF YOUR FUTURE SUCCESS OR RESULTS. MONETARY AND INCOME RESULTS ARE BASED ON MANY FACTORS. WE HAVE NO WAY OF KNOWING HOW WELL YOU WILL DO, AS WE DO NOT KNOW YOU, YOUR BACKGROUND, YOUR WORK ETHIC, OR YOUR BUSINESS SKILLS OR PRACTICES. THEREFORE WE DO NOT GUARANTEE OR IMPLY THAT YOU WILL WIN ANY INCENTIVES OR PRIZES THAT MAY BE OFFERED, GET RICH, THAT YOU WILL DO AS WELL, OR MAKE ANY MONEY AT ALL. THERE IS NO ASSURANCE YOU WILL DO AS WELL. IF YOU RELY UPON OUR FIGURES, YOU MUST ACCEPT THE RISK OF NOT DOING AS WELL.

19 INTERNET BUSINESSES AND EARNINGS DERIVED THEREFROM, HAVE UNKNOWN RISKS INVOLVED, AND ARE NOT SUITABLE FOR EVERYONE. MAKING DECISIONS BASED ON ANY INFORMATION PRESENTED IN OUR PRODUCTS, SERVICES, OR WEB SITE, SHOULD BE DONE ONLY WITH THE KNOWLEDGE THAT YOU COULD EXPERIENCE SIGNIFICANT LOSSES, OR MAKE NO MONEY AT ALL. ONLY RISK CAPITAL SHOULD BE USED. ALL PRODUCTS AND SERVICES BY OUR COMPANY ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY. USE CAUTION AND SEEK THE ADVICE OF QUALIFIED PROFESSIONALS. CHECK WITH YOUR ACCOUNTANT, LAWYER OR PROFESSIONAL ADVISOR, BEFORE ACTING ON THIS OR ANY INFORMATION. USERS OF OUR PRODUCTS, SERVICES AND WEB SITE ARE ADVISED TO DO THEIR OWN DUE DILIGENCE WHEN IT COMES TO MAKING BUSINESS DECISIONS AND ALL INFORMATION, PRODUCTS, AND SERVICES THAT HAVE BEEN PROVIDED SHOULD BE INDEPENDENTLY VERIFIED BY YOUR OWN QUALIFIED PROFESSIONALS. OUR INFORMATION, PRODUCTS, AND SERVICES ON THIS WEB SITE SHOULD BE CAREFULLY CONSIDERED AND EVALUATED, BEFORE REACHING A BUSINESS DECISION, ON WHETHER TO RELY ON THEM. ALL DISCLOSURES AND DISCLAIMERS MADE HEREIN OR ON OUR SITE, APPLY EQUALLY TO ANY OFFERS, PRIZES, OR INCENTIVES, THAT MAY BE MADE BY OUR COMPANY.

20 YOU AGREE THAT OUR COMPANY IS NOT RESPONSIBLE FOR THE SUCCESS OR FAILURE OF YOUR BUSINESS DECISIONS RELATING TO ANY INFORMATION PRESENTED BY OUR COMPANY, OR OUR COMPANY PRODUCTS OR SERVICES.

HOW YOU CAN INVEST YOUR MONEY IN TODAY S MARKET THROUGH PRIVATE MONEY LENDING

HOW YOU CAN INVEST YOUR MONEY IN TODAY S MARKET THROUGH PRIVATE MONEY LENDING Legal Notice Copyright Notice. All rights reserved. No part of this publication may be reproduced or transmitted in any form