I have extra cash reserves in my account and would like to lend it out to real estate investors while I continue my REI investing education on this board and books. I just finished loaning a friends friend some money and he paid me back a generous amount of interest. I have been approached by a few associates and also notice a lot of people who need private money investors. So, while I learn more about REI, why not make my money work for me as it looks like most people only need the money from 1 week to 2 months.
My question is how do I protect myself? My first success was from a very close friend’s friend, so I knew he was good for the loan. For the next loans, I’d definitely would love to cover all the corners and not be taken. What will hold up in court should it somehow get there? Would creating a contract work? What happens should someone be late on their payment? Just curious on how everyones term is and how they protect themselves?
the only person i know that is specializing in private money is alan cowgill. I listened to a few of his audios. I also bout a couple on ebay as well from him. He talks about different paperwork that I cant remember but it does protect him as well as the lender. If I listen to his cd again, I’ll post it here what forms you need.
The process can be simple and profitable. I would suggest talking to others in a local REI club. You will get some excellent advice, folks to contact, and attorneys to do the paperwork. If you build relationships with other investors you know will perform, this is very easy and safe investing. If you reqiure an ARV appraisal, fire insurance, title insurance, and a mortage recorded at the court house all through an attorney you should be safe. Always transfer your funds directly to the title company or attorneys office. Start slow and get background information on who you are lending too. Amazing how investors will put their money in a brokers hands with no clue what they are doing or security on their funds. Real Estate is more profitable and safer when dealing with good people that understand everyone needs to win.
You take on the possibilities is interesting as their is a method to hard money lending. There are a few things that work to protect you and hedge against loss.
-the high rates and points are themselves a product of the risk. Not all things will go well and the cost of litigation and foreclsure can eat up profits. The high costs are protection against the loss.
-lend to those that have performed in the past. Our lending is based on clients that have performed and we have shed those that are suspect or do not have a track record. Past performance is a major factor in protecting yourself. Work with those that worked before.
-On bigger deals with folks with bad credit, for example apartment owners that have had a tendency to file bankrupcty and then run cash businesses as a debtor in possession, can be frustrating to deal with. The technique to use here is to take title and negotiate a lease buy back at a rate of return equal to what you would lend. If they perform, they get the property back, if not you already have title and they cannot file bankrupcty to protect the asset from you.
Basically take title if you can arrange it so you do not have time or money spent in litigation and legal battles.
-Always file a lien against the property, never lend without being in First lien position. Stay away from providing second mortgages.
-Always make sure the client has some of his own money in the deal.
-Always makes sure all permits, approvals, permissions, plans, specs and leases are legally your property upon default.
Our biggest protection is that we have positioned ourselves to complete the rehab or project upon default. We make more money when we take a property back than if the client performed on the loan and we only lend on property that provides this.
All I can say is that lending is a business that you must insulate yourself from everything going wrong at once. For example if history shows that only a small percentage of clients default then it would seem low risk. But if the five of fifty all default this month, and you do not have the financial where with all to absorb that loss and stay liquid during the short term, you could find yourself in a tough spot. Always lend on properties that offer you the ability to make greater profits by owning the project or that you can flip for a greater profit to other builders and developers.
My name is Chee. I am a newbie of the REI. I have been looking around for the short term hard money loan for weeks and I found this website.
By chance, you said you do short term hard money private loan. It hard for you to believe my creditworthy, I am just trying my luck here. I am willing to sign any legal document before any lending action occur.
What do you think?