If you are a real estate investor in the post-credit bubble market and need money to finance your investments there NOT many options left. Traditional mortgage lending is not available to real estate investors. And even hard money loans are few and far between as they now require large down payments and high credit scores. Both mortgage lending and hard money require personal guarantees - not very attractive in this market.
If you are a real estate investor in the post-credit bubble market and need money to finance your investments there NOT many options left. Traditional mortgage lending is not available to real estate investors. And even hard money loans are few and far between as they now require large down payments and high credit scores. Both mortgage lending and hard money require personal guarantees - not very attractive in this market.
The one remaining option for RE investors is borrowing money from private lenders. The definition of a private lender is an individual that you can negotiate directly with on a personal basis to borrow money for real estate investments. The money can be used to purchase rental real estate investments or to supplement funds borrowed from a bank to cover down payments.
If you want to start your own private lending program there are number of things you need to focus on before you begin. I have created a list of questions that you can review and think about that should help you establish your own private lending program.
- Will you offer both 1st mortgages and 2nd mortgages or just one or the other?
- What will be the maximum Loan-to-Value (LTV) for each?
- What interest rate are you going to offer for each?
- Are you going to offer any upfront or back end points?
- If you do 2nd mortgages, will you pay a higher rate and what rates is that?
- What are the minimum and maximum terms for each program?
- Are you going to record the mortgages or is the lender going to record the mortgages?
- What is the minimum investment for the 1st mortgage program and the second mortgage program?
- Will you offer monthly, quarterly, semi-annual or annual payments or all the above?
- Will you pay simple interest or compounded interest?
- Will you offer a no-payment option with 100% Principal and all accrued interest at maturity?
- Will you allow early payoff if requested by the lender?
- How will you handle a lender's request for early pay off?
- How quickly can you respond to such a request?
- Will you offer a minimum earned interest or prepayment penalty?
- What will you do if you need two lenders on one deal?
I know this is lot, but please review and start to think these items through as it will be the guts of your private lending program.
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