Our Private Lending Program came about after we experienced breakdowns in the traditional financing marketplace.
Lenders evaluate whether or not they will lend based on several criteria, such as personal credit scores, earnings, current debt, the number of investment properties that you hold, etc. Any one of these, or a host of other criteria can cause the funds to be withheld.
As time went on we also found that it was taking longer and longer to get decisions and that those decisions could be changed overnight even with no change in the data - hence the need for private money.
Q. What is Private Lending?
A. This is where private individuals such as yourself, loan money out of savings / investment funds, to investors - in essence you become the bank. In return, you receive a return of up to 12% simple interest, either payable quarterly, or upon completion of the project - such as a re-hab project on a single family residence.
Q. Who borrows money at these high rates?
A. Investors that require faster access to funds than conventional financing can achieve. We know that cash is king when negotiating for discounted properties and the availability of cash quickly will often make or break the deal. In these cases it is not the cost of the money that is important but the availability.
Q. What kinds of loans are these?
A. These are private mortgage loans. Your loan is secured by the real estate that we purchase. Typically we borrow at a Loan to Value ratio of less than 75%, which leaves you with a cushion and a healthy amount of equity going forward.
Q. Who handles all the details?
A. We do. It's our job to get you all the proper documentation so that your loan is secured. We pay all costs, so if you send a check for $50,000, you will receive a mortgage for $50,000. As an additional security measure, we never handle the funds. Your check will be sent to a closing agent / title company who will establish an escrow account for the purchase. At the end of the transaction, the funds due to you will be sent direct from closing.
Q. How is my loan secured?
A. You will receive several key documents that will show that your loan is secured.
- An original Promissory Note
- A copy of the Mortgage. the original will be filed and then sent to you.
- A fire insurance endorsement naming you as mortgagee
Q. What is the length of time for the loan?
A. We borrow the money so that we can typically buy, fix-up and sell (or re-finance) properties. You start earning interest on the day that we purchase the property and then your principal and accrued interest is paid to you when we sell or refinance the property (unless you elect to receive quarterly payments). So the terms may vary. As our business is to buy and sell property, we want to get your money working again in the next deal as soon as possible. It's your money and it's your choice how long to keep it earning at this rate of return.
Q. How would I use my IRA or Pension Plan?
A. Making real estate loans is a widely accepted use for IRAs and Pension Plans. There are several companies that specialize on setting up custodian accounts for self directed IRAs. These can be traditional or Roth IRA's, but they must be self directed. We will help you to roll over any existing funds that you want to loan out - this is usually a straightforward process and should take only a few days before the funds become available. You can then start to loan out your money and start earning a tax deferred or tax free income depending on the type of account that you have.
Q. What are the tax implications for loaning out of my IRA or Pension Plan?
A. Typically the funds loaned form a traditional IRA are treated by the IRS as tax deferred, meaning that as long as they stay within the IRA, no tax is due. For a Roth IRA the earnings are normally treated as tax free with the Roth IRA. Remember, tax laws are very specific to each individual, and this is not to be construed as tax advice. You should always consult with your tax professional and/or your CPA to verify your specific tax situation and qualification criteria for these types of accounts.
Note: We are not tax professionals or attorneys, so please check with you CPA or tax professional with regards to your tax questions and current situation.