If you invest in real estate, you need cash to buy houses. Even if you have a full bank account and great credit, you will eventually run out of funds, or little time to get a loan, for the next deal. Private loans are the answer. It is an inexhaustible reserve of easily accessible funds: whether you have excellent credit or poor credit; whether you have cash reserves or not.

“Private loans” refers to the process of borrowing real estate investment funds from individuals at rates higher than what these lenders can normally get on the market. The appeal of private loans is the speed and ease of financing a deal.

Here’s how it works … you first find or market to find people interested in earning 10-12% interest (or whatever you think is affordable to you and attractive to others) in real estate-secured investments. You will find these prospects everywhere. They belong to your local investment association, your church, your civic club, they are your friends and family, your next door neighbor. You will be amazed at how easily you will locate them, and soon they will be looking for you. Just tell everyone that you pay high interest on your loans on your real estate projects.

Since prospects express interest, explain that the investments are secured by real estate and do not exceed 75% of the loan-to-value (LTV) of the home’s value after repair. Each investment is based on a specific property and they can turn down any property that they are not comfortable with. All you need is for them to be approved quickly (within 48 hours) and can fund within 7-10 days or less.

Once the investment has been approved, the funds are transferred to the closing attorney for safekeeping. After closing, the lender will receive a Promissory Note from you (either personally, your business entity, or both), a Deed to secure the property’s debt (mortgage), title insurance from the lender, and listed as a mortgagee in the insurance policy against risks.

If no investor can finance the entire investment, then pool multiple loans by providing the largest investor with a first-place mortgage and each smaller investor with a progressively subordinated (second, third, etc.) mortgage. We generally pay an additional percentage on the interest rate to attract investors who accept subordinate positions.

The advantages of private loans are that the approval process is minimal, so the availability of funds is quick. You only pay interest, rather than also incurring a loan origination fee commonly known as “points.” You are never bound by arbitrary rules as to how many mortgages you can have in your name. In fact, none of these mortgages appear on your credit report. In turn, the private lender receives a higher interest rate with a very safe investment. Everyone wins!

Now you may be wondering how many people you know actually have $ 75k – $ 100k – $ 150,000 ready to invest. More than you think, and most of them don’t even realize it! That’s because the money is tied up in their IRA accounts, which they believe cannot be accessed until retirement. That is only half true. They cannot personally withdraw the money without suffering penalties; But they can invest their funds (and receive their interest tax-free! if it’s a ROTH IRA) if they roll over to a self-directed IRA.

A self-directed IRA is managed by a third-party institution (we recommend Equity Trust Company in Ohio http://www.trustetc.com) and allows the owner of the IRA to make decisions regarding the investment of the funds. In other words, the IRA owner may decide to use his IRA funds to make a real estate investment in his property. Most people don’t even realize this as a possibility. They believe that your money should remain tied up in an IRA until you retire and earn nominal interest. Imagine how excited they are when you offer them this alternative! Imagine how much money is currently in traditional IRAs that you could take advantage of. There are more funds available than you can use. Isn’t it a good problem to have?

Since Equity Trust Company has all the forms on their website, I make sure that making a loan is as simple as possible for my private lenders. I prepare all the required documents so that all they have to do is sign and fax to Equity Trust. From then on, the private lender has nothing else to do. Easy. Easy. Your next task is to approve the settlement when the loan is repaid. Because the loan process is so simple and the interest rate so favorable, investors are always asking for reinvestment. This is truly an inexhaustible fund of investment cash.

Don’t forget that if you have cash in an IRA, you can also increase the interest you are earning by becoming a private lender. You cannot invest in any property or company in which you or your family have a personal interest, but you can invest in the projects of other investors you know and trust. It is a great way to get over your IRA.

Have a nice week

Lou