Thinking of private lending in real estate? Here are some key points to consider

There are remarkable opportunities and benefits to investing in real estate right now. With foreclosures continuing to rise, overall housing supply rising and the prices of those homes falling, there are great deals to be found in nearly every real estate market in the country. If you are considering taking advantage of real estate either directly or through private lending to an investor or a real estate investment business, here are several questions that you may want to consider asking to ensure that your money isn’t being put at unnecessary risk.

Q. – I’m considering lending funds to a real estate investor. The investor has given me some example investments that she’s made in the past but hasn’t provided details on when or what my funds will be invested in or the specific financials of the deal.

A. – Every real estate investor and every investment works differently. One of the single most attractive aspects of real estate is the numerous ways to work and profit in the industry. However, there are some key principles that should be followed in any investment opportunity. Clear, transparent documentation on how your money will be used and how your investment will be repaid is probably the most important of these.

Have the investor provide you with a detailed schedule from when you send them funds to when you can expect a return of both your principle and interest or dividends. Every investment is different, but the investor should in every case be able to provide you a concrete schedule for when you will be repaid. This information should ideally be provided in advance and definitely at the time of the transaction so that it’s included with all other legal documents related to the transaction.

Q. – I’m working with an investor on a deal to buy a house. The investor has explained the deal terms and purchase price and has asked me to send him a check for the purchase of the property a week before the close and that he would then send me all of the documentation immediately after the close. What should I do?

A. – Each investor works differently, but there are some important questions to be answered and key steps that should be followed before sending any funds to any investment. You may want to consider the reputation or your previous experience with the investor. Have you worked with them in the past? Have you spoken with other investors that have participated with them? What was their performance on past investments and how did the investor rate their trustworthiness?

Herman Brunson Investments has always treated our investors’ trust and money as if I our livelihood depends upon it – because it does. We always provide up-front documentation detailing our expectation for financial performance of the investment, appraisal and inspection information, key dates such as closing date and repayment schedule, repayment amounts and title and liability insurance documents with the private lender as named insured for their protection.

We also never, ever, ever have our investors send us money directly (In fact, we believe that it should work the other way around!). When an investor has decided to participate with us on an investment, we have the investor send their funds either directly to the closing attorney or to the Title Company handling the transaction. We never, ever allow private lending funds to be sent directly to Herman Brunson Investments.

Q. – I want to do private real estate lending but I have I know there is a lot of turmoil in the real estate market these days. How do I know I will get my money back? How are my funds secured?

A. – There absolutely is a tremendous amount of turmoil in the real estate these days. Like all business sectors, there are up and down cycles and there are always opportunities to profit when business people and managers in those sectors make smart, well thought-out decisions no matter the cycle. Right now, there are amazing opportunities to profit and succeed in the real estate markets we are currently investing in.

Unlike stocks or bonds, your private lending real estate investment is secured by a hard asset – real estate. I like to tell my investors that unlike investing in stocks in a bank or mutual fund shares, when they invest in real estate, they can actually see, touch and walk through their investment – it’s an actual brick and mortar home! When you make a private lending investment, your funds are secured by a promissory notes and lien on the real estate as collateral for the funds borrowed. The lien will remain on the property to secure your interest until the funds borrowed are repaid according to the terms in the promissory note. And unlike an investment in stocks or mutual funds, your return is stable and consistent as spelled out in the promissory note. Our investors know they are going to be receiving checks and statements every month when they invest with us.

About Herman Brunson Investments:

Herman Brunson, President
Herman Brunson Investments

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