Becoming A Private Money Lender
The onset of the U.S. Banking Crisis in 2008, the majority of banks in the U.S. disappeared overnight. Real Estate Investors found themselves with banks no longer loaning to them. Resulting in them turning to private money lender to fund their real estate deals. Without the availability of these non-bank loans, I truly believe the real estate market would not have seen even this slight recovery.
For someone wanting a higher return on their money, there is no better time to become a lender to real estate investors. Those experience real estate investors, who have cash to buy are able to buy real estate property 40% to 60% of their original value.
The private lender become the mortgage holder, on properties.
Private Lending Through You IRA
Many people have started to leverage their IRAs, Self Directed IRAs, and Roth IRAs to provide these private money loans to real estate investors. While some will use their IRAs to invest in real estate themselves, others have chosen to leave the work to the expert real estate investors, while they provide the financing in the form of private money loans.
For example, a private lender can charge 6% to 8%, interest only, on a private money loan to a real estate investor. This loan is secured by the property being used as collateral and the real estate investor makes monthly payments on the loan to the lender until the property is sold or refinanced by another lender. If the loan goes into default, the private lender’s exposure on the loan is only 65-75% of the value of the property. (And most of the time the property is already discounted having been acquired via foreclosure or short sale). This means the private money lender can sell the property if the borrower defaults and can expect a spread of between 25-35% once the property is sold.
Using an IRA is a clever way to pull out this cash and use it to lend to savvy real estate investors on a tax-deferred basis. And with annual returns hovering around 8%, private money lenders have discovered a way to diversify their retirement portfolios and take advantage of discounted real estate sales
Benefits Of Private Money Loans
There are private money lenders in virtually every state in the United States, seeking a chance to earn above average rates of return on their money. With that comes the risk that a private money loan may not be re-paid on time or at all without legal action. However, in the case of a real estate transaction the lender can ask for a deed on the property in their name & Insurance on the property the same as a bank lending money would require as collateral to help insure they be repaid in the event of a default on the loan or catastrophe to the property. In that case the lender gets the property and can sell it to recoup their investment. Private money is offered to clients in many cases in which the banks have found the risk to be too high.
Despite the risks involved, however, private money lending represents an opportunity for borrowers to obtain the financing that they need to purchase homes, and the flexible lending terms necessary to facilitate the process of rehabbing, or fixing and flipping properties for investment purposes. Many private money investors specialize in providing loans to individuals where property condition or the purchase transaction is deemed to be high risk by banks.
You can get my free book on Private Money Leading at “California Private Real Estate Investing”