Typically, our private lenders get between a very high return on their investment. The return is based on which state the money is lent, the investment dollar amount, type of property, borrower's experience, and resale plan. We are always looking for individuals and groups to privately lend on real estate because there is a growing need for this type of investor and the market timing couldn't be more desirable. Investors are buying as the market has appreciated in value. This is an extremely favorable market position for a private lender. It is a great opportunity to achieve a higher fixed rate of return than on your present investment vehicles.
Most of the loans funded by our current private lenders are short-term bridge loans. The average term is 12 months. The loans are usually interest-only with no prepayment penalty which allows the borrower to easily resell or refinance out of the loan. Most of our existing private lenders require a 10% to 20% down payment by the borrower on the property being financed as long as there is a minimum of 30% equity after rehab. This makes for a secure private loan position and requires the borrower to have some initial financial commitment into the property. Our private lenders, in almost all cases, are in the first position on the property being financed. Residential loans are only for non-owner occupied borrowers. This is a requirement because of state and local government restrictions and because all of our current private lenders do not want to ever have to be in the position to foreclose on an owner occupant borrower.
Most of our private lenders want to be assured they will make substantially more money investing in real estate loans than in their existing investment portfolio. Many of our private lenders also want to see their money being spent on properties and borrowers that will improve the community, thus targeting certain types of projects.
Philanthropy is an aspect that all our private lenders enjoy, some more openly than others. Most investors like adding this type of investment to their portfolio because they can physically see where their money is being invested every day. If they choose, they can observe the growth of that investment, not only in terms of profit, but also in the growth of the community in which they live. Investors achieve something rare in the world of financial investment and get one of the highest returns possible with minimal risk while observing in real time the improvement of their community.
Why Brokerage is the Way to Go for Private Lenders
- Screening Borrowers:
We spend a great deal of time screening Borrowers in the beginning of the process. This is why to a large extent we had only one foreclosure in the past six years on over 200 loans we have brokered. We don't just look at down payment as our criterion for private lending. We look at the investor's experience, motivation, rehab. plan and exit strategy. Many prospective investors do not go beyond this phase.
- Evaluate Pricing:
This information is not always readily available to our private lenders. As realtors, we have a better understanding of resale values than most investors or private lenders. Often investors tend to be overly optimistic in their resell values which can put our private lenders at greater risk.
- Evaluating Rehab. Budget and scope of work to be performed:
We look at the rehabilitation aspect of the loan to make sure it is realistic and under control. There are many investors who under-budget their rehab and therefore, they can't bring the property up to FHA standards for resale. There are many investors who over-rehabilitate their property forgetting that it is an investment on which they are to set make a profit. We assist investors from a realtor's prospective where the best use of their rehab funds need to be. This is done to maximize their return with the results increasing their likelihood to sell the property faster thus paying off the private lender more rapidly. Why is this a good thing? If a private lender can re-lend their money once or twice within a 12 month period the return on their funds is increased significantly.
- Follow-up with the investor after the loan closes:
Many private lenders or other mortgage companies do not have the time, energy, or desire to work with the investor after the closing, but we do! We've had only ONE foreclosure on properties that have been funded by our private lenders. We help investors with buyer leads, contractor's contacts and realtor referrals (if needed), all in an effort to assist the investor in completing a successful rehab. project. Timely monthly payments and an early payoff of the private loan ensure success for both the investor and our private lenders. We tract all our private loans in terms of rehabilitation funds expended and timeliness of monthly interest payments.