Only $29.95 !
Frequently Asked Questions
The best thing an investor can do if he knows he must default is to inform the lender ASAP. Communication is what saves deals and the lack of it, kills deals and relationships. Have a backup plan in case the lender needs it to avoid foreclosure. If you want to stay in the business, plan on making the lender whole on your next deal.
This question is always on the minds of private lenders, even if they don't ask you. I touch on this in the text because you need to be truthful that there are no guarantees other than a mortgage and a note on the property. I have had private lenders ask for life insurance for the term on the project, so be prepared. Equate the equity in the property to the "insurance" that backs their loan versus FDIC insurance that has been bankrupt for many years.
One of the pieces of your presentation package to your prospective lender must be an appraisal. You may not like his current value, but he is a licensed professional, and the lender will feel more comfortable with his estimate than you guesstimate. Have a second appraisal done if you don't like the first estimate and ask both appraisers to give you an estimated After Repaired Value. Using a Broker's Price Opinion ('BPO') or Comparative Market Analysis ('CMA') can be deceptive in too many cases, as opposed to using a professionally licensed appraiser.
There is an estimated $43.4 trillion in all types of retirement plans. All these funds could be available to private lenders if they were transferred to self-directed retirement plans. The issue is that a plan holder must transfer their retirement funds to a Trustee of a Self-directed retirement plan. Once completed, they should then have what is called a "Checkbook" plan so they can administer it themselves.
What is excellent about private lenders is you can ask and receive 100% of the funds needed for your project. Before asking for any amount, build in some extra funds for emergencies. Keep your funds for liquidity or emergency purposes and ask for more than you need if you can justify it in your presentation to the lender.
The critical documents needed by a lender are a note and mortgage, or deed of trust on the property; a 'fee simple' title policy issued by an attorney or licensed closing agent; property and liability insurance with the lender as co-insured; and a personal guarantee from the borrower.
The lender or his designated representative must handle loan servicing, and reporting of the status of the project must be done every month. This report should contain current pictures and material usage to get ahead of potential problems.
Investors usually offer private lenders interest rates that are comparable to current Certificate of Deposits ('CD') rates, currently 4.5% to 6%. If you can charge 8% to 10% you can become a hard money lender with little additional effort. This is why private lenders gravitate to hard money lenders after four to six successful investor loans.
Private lenders can loan across state lines. However, the important issues that can cause monetary losses are the inability to have accountable 'boots on the ground', less communication with the investor, and the credibility of estimates of repair and After Repaired Value determinations."
Hard money lenders differ from private lenders in that the private lenders do not rely on the income from their loans to make a living in most cases. If you borrow from an individual who depends on your loan's interest to live, find another lender, or you could be facing criminal charges if your deal goes bad. Hard money lenders have strict borrowers' requirements and are called 'predatory lenders' for good reasons.
Only $29.95 !