How do I Get Paid | Private Money Lending

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