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Private Money Lending Overview
A private money loans are made by non-institutional individuals to a real estate investors. The loans are secured by a note and deed of trust on real property. Essentially, private money lending is the lenders' opportunity to become the bank and reap the rewards. It's a great way to generate cash flow and produce a predictable income stream while still providing excellent security and safety for principal investments.
How It Works
- The process is simple. First, we find an incredibly undervalued property we want to purchase. We perform our due diligence, which includes but is not limited to paying for a title search paying for a title policy. We provide the private money lender (PML) with all the specifics (see our sample investors presentation). Once our private money lender gives us the green light to buy, we borrow the funds from them to purchase and renovate the property. At the closing, the (PML) receives a promissory note. This is just part of the collateral they receive on their investment. Additionally, the (PML) receives a capital deed of the trust. This is a document that is recorded with the county clerk to publicly secure their investment against the real property. The (PML) also receives a hazard insurance policy, and will be notified if the insurance is not kept current. This is where the private lender is listed as the "mortgagee" for their protection in case a fire, natural disaster or if any other unforeseen circumstances occur. In the event of any damage to the property, insurance distributions will be used to either rebuild, repair the property or to repay the private money lender.
Renovation
- The next stage is the property renovation. Before the repairs are complete, we begin our marketing campaign to list and sell the property. Improvements usually take within three to six weeks depending upon the amount of restoration that needs to be done. Once the renovations have been completed and the property is sold, at the closing the private money lender receives their principal investment, plus interest. This is typically between 8 to 12% a far greater return on investment than if the (PML) were to leave their money sitting in a bank. The goal is to turn the private money lenders money over continually. This will ensure they will be making substantial profits and keep coming back to us for our services and build a long-term, mutually beneficial relationship.
The Benefits
- The reason private lending is so compelling is that it is passive income and there's minimal time involved for the private money lender. There's no dealing with tenants, no manual labor used to renovate properties, and no dealing with unscrupulous contractors. You will have the sense of security that your money will be returned to you soon, with a sizable return on your investment that is secured by marketable and liquid real estate. We, the borrowers do the hard work for the private money lenders. Finding the properties, putting our time and energy into renovating, marketing and selling them and we both rep the rewards.