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This is the last article in the series of private lending in real estate. To watch all the videos in this series visit our private lending playlist
There are two investment structures for single-family properties: joint venture (JV) equity and debt. JV equity involves profit-sharing between a newer investor and a seasoned lender, often split 50/50. In contrast, the debt structure is akin to a mortgage, with shorter terms (typically 12 months) and interest rates from 8-14%, depending on the investor's experience. The lender can receive interest payments monthly or at the end of the term. They also discuss extension fees and the importance of matching investment time frames with the investor’s goals. How Does Private Lending Work? The concept of a private money loan is relatively simple. You have a borrower, a lender, and paperwork. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, private lending offers speed that allows an investor to make a strong offer by closing fast. How Do I Get Paid? Private lending is very flexible on how you structure your deal. Joint Ventures: As a private money lender, a profit split can be one of the most attractive options for financing an investment. Investors can negotiate to receive a percentage of the final profits in this type of agreement. The amount will vary based on the contract and the investment, though it could be quite profitable. Exit Fees and Renewal Fees: This loan structure requires the borrower to pay a predetermined amount at the end of the loan term. The exit fee is often negotiated as a percentage of the overall price of the investment. In some cases, lenders may even negotiate an increasing exit fee that changes depending on when the loan is paid in full. For example, if the borrower needed a few extra months to repay the loan, then they would pay a larger exit fee. Interest Payments: This is the most common set up in private money. Lenders can set an interest rate at the time of the loan approval and sit back and wait for the money to arrive. You can receive monthly or quarterly payments. Or all your principal and interest at the end. For example, when a rehabber renovates and resales his property. Points: Points are essentially fees paid by borrowers. Points are calculated as percentages of the overall loan, with one point referring to one percent of the loan amount. The reason some lenders prefer this system is that points allow them to be paid in larger sums, with additional interest payments to follow. More often than not, points are paid at the beginning of the loan term and are suggested by the borrower as an incentive for granting the loan. To learn more about way to get paid as a private lender in real estate visit our YT Channel The Virtual Investor
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This article is part of a series on private lending in real estate investing.
Today we will discuss what kind of properties does a Private Lender lend on? Curious about the types of properties you can lend on as a private lender? 🏠💼 There is a diverse range of properties that are ideal for private lending. From residential homes to commercial spaces, we explore the opportunities available in the real estate market. Whether you're interested in fix-and-flips or long-term rentals, there's a property for every investor. Watch now to learn more and expand your investment portfolio with private lending! 🔍💰 What Type of Properties do I Private Lend? With private money lending, you will be confronted with several types of real estate investors. Here are a few scenarios you may encounter: Transactional: This type of investor will typically purchase a residential property and quickly resale it as-is. The investor may only need your money for a day or a few weeks. Rehab/Sell: This type of investor will typically purchase a residential property and complete renovations with the intention of reselling it once the project is complete. Borrowers in this sector find private money attractive because conventional banks will often not lend to properties in poor condition. Lending on this type of deal will be 3-9 months on average. Rehab/Rent: These investors typically purchase a residential property and complete renovations with the intention of renting the property for cash flow purposes. Once renovations are completed, the investor will get a loan from the bank (low interest rate) and pay you back. Lending on this type of deal will be 3-9 months on average. Builders/Developers: Builders and developers will purchase vacant land to permit and develop into residential or commercial use. Many banks will not lend on speculative development. Depending on the type of development, lending on this type of deal will be 1-3 years on average. Commercial Investors: This population of investors may seek to use private money as a “bridge loan” for a commercial property when a conventional bank will not lend on an un-stabilized asset. This post is a continuation with a series on private lending in real estate investing.
To become a private money lender, networking is key. Attend local real estate investor meetups to connect with potential borrowers and other lenders. Listen and learn from others, and educate yourself through books and online resources. Additionally, using platforms like Facebook Marketplace and Craigslist to find borrowers can be effective. Building relationships through networking can help you find reliable investment opportunities and achieve desired returns. To learn more about How to Become a Private Lender in Real Estate Investing, you can watch this video This is a continuation of our series on Private Lending in real estate investing.
Today we will discuss How Does Private Lending work for real estate investing. Private lending involves a borrower (real estate investor) and a lender agreeing on terms like interest rates, points, and loan duration. The process includes preparing paperwork, usually managed by a closing company. The lender sends funds to the closing company, not directly to the borrower. Upon property sale or refinancing, the lender is repaid with interest. Additional security measures include adding the lender to the insurance policy. This setup allows for flexibility and quicker funding compared to traditional banks, making it a preferred option for many investors. To learn more watch our video conversation regarding How Does Private Lending work for real estate investing. |
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