Private Lending for High Profits:
A Safe Alternative to the Stock Market!
Are you earning 10-12% or more yields from your CD's, Stocks, Savings Accounts, IRA's, Pension Plans and other investments? If the answer is no, and I'm sure it is, Please pay very special attention because the following information could make you thousands of dollars in the coming years simply by increasing the yield on the same money that you're investing now.
I'd like to spend the next few minutes talking to you about a way you can control your investments and safely make them grow at three to five times your current rate. Yes, I know that it sounds too good to be true, but it isn't. What I'm going to share with you is very common in real estate circles and has been going on right under your nose in every city in America. Smart people have been utilizing this investment for years. In fact... There have been entire companies built around this investment and those who do it properly have grown to huge proportions. This is a very safe investment that produces high yield while at the same time providing security and liquidity.
Do you know what $25,000 is worth in five years at a 4% yield?
It becomes $30,525...
Do you know what $25,000 is worth in five years at a 7% yield?
It's worth $35,440...
But now lets take a look at the same $25,000 and invest for the same five years at a 15% rate of interest. Now it's grown to an amazing $52,680! That's a $17,000-$22,000 difference simply by upping the yield. That's how compound interest works FOR you; and remember that's only five years. See all the FREE DOLLARS you will actually receive simply by increasing your yield. Can you really afford not to control your own investments?
Does it make sense for a bank to run your investments for you? They would like for you to believe it does. There is an alternative for you to consider...Private Mortgage Loans and Seller Financed Notes. You can loan money, secured by a first or second mortgage that will not only give you safety you want but will also give you the high yield we've discussed!
Let's discuss the pros and cons of loaning money secured by real estate. First, let's clarify what kind of loans. I'm not talking about high loan to value (LTV) loans the banks and savings and loans make. What we are dealing with here are very low loan to value loans. By that I mean no higher than 70%-80% of the value of the property securing the loan. This means if a house appraises for $100,000 you wouldn't make a loan for more that $70,000-$80,000. It's obvious why this is a much safer approach than most lending institutions take. The banks are in trouble because they make loans at a 90% or 95% or even 100% loan to value ratio. They just don't have any cushion for default. On the other hand, when you are dealing with a 80% maximum LTV there is much equity above your loan that if you have to foreclose, the property could be sold not only for enough to cover your investment, but quite often at a profit.
The more time that transpires, it works to YOUR ADVANTAGE; the property usually increases in value and your amount due to you is decreasing. So in other words, If you are Real Estate orientated, this is just another avenue of income for you... and if you aren't Real Estate orientated... There are plenty of investors (LIKE US) and homeowners that would love to have the property for the low LTV if you had to take it back. Now, I'm doing a lot of talk about default here, but in reality when the loan is at such a low LTV ratio, default is not common.
Now, let me see if I can answer some of your questions you may have about making loans.
Is This A Mortgage Pool?
No! You make the whole loan yourself. You get a lien against the property. You are the bank. You are in total control.
Do I Need A Lot Of Money?
No! I have made loans as small as $5,000. (Honestly, these are harder to find. A mortgage loan will probably be in the $20,000-$25,000 minimum range, but seller financed notes can be found under $20,000). The amount of loan is determined by the borrower's needs.
Who Handles All Of The Details?
We believe that unless you are highly skilled in real estate matters, you should leave that up to the professionals. The loan can be closed at a local attorney's office and all the expenses can be passed on to the borrower and/or included in the loan.
Is This A Long Term Investment?
No! It can be any term you want. You're the boss. Usually you want at least a 5 year term and some investors don't care if it stretches out to ten years or more, even up to 30 years. You pick the term that suits your strategy for investing/retirement. Some investors make interest only loans with a short-term balloon. Some will amortize for 15 or 30 years and balloon in 5 years and some prefer longer terms. It's your money and it's your choice.
What If I Want To Liquidate?
Mortgages are purchased everyday like stocks. If you want out, it will take from two weeks to a month to sell your note. Since your interest rate will be fairly high, you will take very little discount, if any, when you sell. You really shouldn't make mortgage loans if you feel you will liquidate shortly, but the option is always available.
Who Borrows At These Rates?
All kinds of people. Some with good credit, some with poor credit. Some are owner occupants and some are investors. These people have learned... It's not the cost of the money that counts, but the availability of it. In cases of an owner occupant, they may not qualify under bank terms for any number of reasons (i.e. poor credit, time on their job, dept ratio...) In a lot of cases, they would qualify, but just don't want to deal with banks. They would rather pay the higher rates in exchange for the ease of getting the money.
This also holds true for investors. Having the funds available can make or break the deal. When an investor finds a good deal, they usually need to close quickly, in a couple of weeks, which is simply not possible with banks. Also, if the investor is good at locating the good deals, the banks want to penalize the investor for being a good bargain hunter. If the investor has t0o many bank loans (usually 3-5) the bank considers the investor to be to0 high risk and will not lend to them. Or if they do, they will only loan up to 80% of the purchase price, leaving the investor with nothing to do the rehab work. The loss of thousands of dollars in profits if the money wasn't available. Remember, you as the lender won't lend more than 70% to 80% LTV regardless. You're making a safe loan in either case whether it is an investor or owner occupant. You should never make a loan without a 20%-30% safety net. If you don't violate that rule, you should always come out a winner.
What Are My Options If The Borrower Doesn't Pay?
Actually there are several options in event of default by the borrower. Foreclosure is only one of them and usually the last on the list. The first thing you could do if your borrowers problem is temporary is restructuring the note. For example, let's say your borrower was out of work for three months and was behind on his payments to you for the previous two months. Now they find a new job and would like to keep the house, be they can't come up with enough money to bring you current plus his arrearage in addition. You could simply add the arrearage to the principle balance and extend the term of the loan. There is almost always a way to work it out if both sides are willing. Remember, it's up to you whether to even let the borrower reinstate or not. Once they are in default you have the right to call the loan due or allow reinstatement. It's your choice. You don't have to take the payments unless you want to. At this point you are in total control. Of course you would only allow a reinstatement if the borrower has solved their problem and can continue to make payments.
If that is not the case ... you have other options. You can offer to buy the property from the borrower in lieu of foreclosure. This is an opportunity for you to get a house at a greatly discounted price and avoid foreclosure at the same time. Your borrower has the option of either taking some money now and selling you the house or being foreclosed out and getting nothing. When this happens, you have created a tremendous profit center by simply reselling the house. Some investors make private loans in hopes that this will happen and some would rather not get involved with the real estate at all. Which ever you are ... You Win!
Like I said earlier, when you can sell a house at 70% to 80% of it's value, there are scores of investors/owner occupants who would take it off your hands. In fact, there are businesses built around tracking down these kinds of deals. If you have an uncooperative borrower and you can't restructure or sell, then you are left with either selling your note or foreclosing. Yes, there are investors who are willing to buy your note, even if it's in default. In fact... That's why they want it! They can either force payment of the debt or get the house. However, if you sell a note in default, you will usually have to discount it, so that isn't my favorite option.
If left with no other options, you should simply foreclose. Foreclosure isn't the evil, time consuming, costly legal process that most people think it is. It's as simple as sending your note/mortgage to an attorney and saying "Do It". All you have to do then is sit back and wait. Nine times out of ten, before the foreclosure is complete, someone will be calling your attorney's office with a payoff letter, and your loan will get paid off. When this happens, you will collect all accrued interest, your principle balance and all attorney's fees, court costs and all other expenses you have incurred in connection with your loan.
You see, when you're into a property right, there are always lenders who will refinance, relatives who will bail then out, or scores of buyers who will buy them out. In the event that none of this happens, you will get the house in which case you will have the options we discussed earlier.
What If The Borrower Files Bankruptcy?
You have a lien against the property. You cannot be wiped out by bankruptcy. If your borrower files Chapter 7, you should be able to continue with the foreclosure process. It will be slowed down, but it won't be stopped. You have a secured debt and a right to seize the asset. If Chapter 13 for reorganization if filed, your borrower will be ordered to continue with his monthly payments and probably an additional payment on his arrearage. In the event that one payment is missed, you can then proceed with the foreclosure process and usually, within 30-60 days the process will be complete. Bankruptcy will slow the procedure, but will not keep you from collecting your debt.
What If I Make A Second And The First Doesn't Get Paid?
If you're in second position and you aren't getting paid, chances are the first is in arrears also. In that case, to protect your interest, you would simply bring the first current while taking action on your second. You must be notified of foreclosure action by the first lienholder in most states. You'll have plenty of time to react. Remember, any money you advance, you are entitled to collect as part of your debt. That includes any payments that you make on the first.
Part of your closing package, if you're loaning on a second is mortgage verification on the first. This will include all the loan information and the current status of the loan. Frequently, small seconds are made to people who are in foreclosure for just enough to bring the first mortgage current. Obviously, this loan stands a much higher chance of going into default, so if you're an investor who is not real estate oriented, one who would rather not own the property then you wouldn't want this kind of loan.
On the other hand, owning the property is just a larger profit center, so then you might consider specializing in foreclosure loans. What a lot of investors tend to forget is that just because you wind up with the house doesn't mean you have to keep it. It can be sold immediately at a fair sale price and still produce profit over and above the already high yield on your loan. There is no law that says you have to be a landlord and deal with tenants, just because you own the house.
Now, of course some people will say that you are taking advantage of people in trouble. If that's how you feel, then don't make loans to people in foreclosure. Let them stay in foreclosure and lose their house. Just remember, they were in foreclosure long before you came along. You had nothing to do with that. Also remember, that you are probably their only hope of saving their home. When you bail them out of foreclosure, they agree to make you payments on the money you loaned to them. If they do, you've supplied them with a valuable service they won't get anywhere else. If they don't pay, are they any worse off than they were before you made them the loan? You Decide! If you are going to make loans to people in foreclosure, let's not forget the basics. They must still be low loan to value with plenty of equity cushion in case of default. Common sense still prevails.
What Kind of Documents Should I Receive?
Is My Investment Really As Safe As It Sounds?
Yes! As long as you've followed the guidelines that we've talked about and apply common sense. No, mortgages aren't as hands off as mutual funds, stocks or other kinds of nonparticipation investments, but in return for a little effort on your part, your money will grow two, three or even four times faster than your current investments and in addition, you maintain control. If you follow some simple guidelines when making loans your risk will be minimal at best.
Briefly, these guidelines are:
How Do I Use My IRA or Pensions Plans?
Making real estate loans is an approved and widely accepted use of IRA's and Pension Plans. Think of it, now you cannot only loan out money that has been unavailable for you to use, but you can make it grow rapidly... Tax Deferred! Since Uncle Sam isn't taking a bite of your profits until you draw out the money, or never if you have a Roth IRA, more money is left in the account to compound and grow. The results are staggering. You'll be receiving interest on interest on interest and It's All Legal And Approved By The IRS!
In order for you to use retirement accounts for loans a "Third Party Administrator" or TPA must administer them. This TPA is set up and approved to administer your loan activities. This means you will probably have to transfer your plan to one of these TPA's, unless of course, your present administrator is set up to do that, but the likelihood of that happening is slim to none.
Quest IRA, Equity Trust, or Mid Ohio Securities are the TPA that I use as well as many of my colleagues. They specialize in real estate investing and can answer many of your questions regarding this topic of making loans with you IRA or Pension Plan. However, you can use any TPA of your choice.
When your TPA is located, simply send the transfer form to them and they'll do all the work for you. Once you've done that You're Ready To Make Loans! When you've selected a loan, you simply notify your TPA where to send the check for the gross amount of the loan and you're in business. There should be no costs to you except your plan administering costs. Most TPA's will even collect the monthly payment for you and deposit them into your account. There are some restrictions when dealing with IRA's such as self dealing, but you're TPA will furnish you with all of the facts upon request. If you have any questions regarding your plan or its administration, contact your Plan Administrator.
Well, we've covered a lot in the short time we've had together. I hope I've enlightened you on the awesome power of making real estate loans. If it appeals to you, I can't think of a better time to get started than right now. While most people are complaining about the low rates they are getting on their CD's and other low paying investments, you could be doing much better. You'll be receiving an above market rate all the time... Not Just When You Get A Hot Stock! So, are you going to continue to let other people control your money so you can get a return that barely keeps pace with inflation; or are you going to take control and make sure that when you get ready to retire, you can do what you want without worrying about money? Mortgage lending is an incredible way to build wealth in a hurry that most people aren't aware exists.
Well, you're not one of those people who are uninformed anymore... You're now ready to act and start investing. If you have any questions, contact us at:
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