Private Lending
We lend out our money for real estate projects
About Private Lending
We provide funds to real estate investors or developers for various real estate projects in exchange for a set interest rate and points on the loan. We act as an alternative source of funding compared to traditional banks or financial institutions.
Simply Stated
Private lending is when a party loans out their money to another party. They will set terms and conditions for the loan. Typically lenders will charge points (upfront cost for the loan) and an interest rate for borrowing the money. The collateral that real estate Private Lenders use is the property itself. They will place a lien on the property to ensure payment of the loan.
Here's how private lending in real estate typically works:
1. Parties Involved:
- Borrower/Real Estate Investor: The individual or company seeking funds for a real estate project.
- Private Lender: The individual or entity providing the funds to the borrower. Typically passive investors such as your dentist who loan out money to investors to provide them a return. These costs are much less hefty then using hard money lenders. They are harder to find but they are simply looking for a better return on their money than their bank provides them while having their money in a safe asset with someone they trust.
-Hard Money Lenders: Lenders that typically have short term loan durations. They charge higher interest rates and points to get the loan. Using Hard Money is a strategy that is typically only sustainable for a short term project. Used interchangeably with private lending at times.
2. Types of Real Estate Projects: Private lending can be used for various real estate projects, including property purchases, fix-and-flip ventures, new construction, property development, and even refinancing existing properties.
3. Loan Terms:
- Interest Rate: Private loans often come with higher interest rates compared to traditional loans, reflecting the greater risk undertaken by the private lender.
- Loan Duration: Private loans typically have shorter terms, usually ranging from a few months to a few years.
- Collateral: The real estate property being financed often serves as collateral for the loan. This provides security for the lender in case the borrower defaults.
-Points: An upfront fee that lenders charge for providing a loan. Points are typically a percentage of the loan.
-Balloon Payments: Some private loans might require "balloon payments" where the borrower repays the principal amount in a lump sum at the end of the loan term.
4. Flexibility and Speed: Private lending is known for its flexibility and quicker approval process compared to traditional lenders. This can be beneficial for investors who need funds rapidly for time-sensitive real estate opportunities.
5. Underwriting Process: While traditional lenders primarily evaluate a borrower's credit history and financial standing, private lenders might focus more on the value and potential of the real estate project itself. They might consider the property's market value, location, potential for profit, and the borrower's experience.
6. Risk and Return:
- Risk for Lender: Private lending involves higher risks for lenders due to the lack of extensive regulatory oversight and the potential for default by the borrower.
- Return for Lender: To compensate for the higher risk, private lenders often seek higher returns on their investment through the interest rates charged.
7. Exit Strategies:
-Sale or Refinance: In many cases, real estate investors use private loans to acquire properties quickly, make improvements, and then either sell the property or refinance it with a conventional mortgage to pay off the private loan.
Private lending in real estate provides an opportunity for both borrowers and lenders. Borrowers can access funds that might not be available through traditional channels, and private lenders can earn attractive returns on their investments. However, it's important for both parties to thoroughly understand the terms of the loan and the associated risks before entering into a private lending arrangement. Consulting legal and financial professionals is recommended to ensure that all legal and regulatory requirements are met.
Earnest Money Deposit Lending
On top of private lending, we also lend out earnest money deposits to real estate professionals who have gained our trust. Typically these are very short term loans with a period of 30 days. Every deal varies according to the contract and relationship the lender has with the borrower.
For example if a fix and flipper needs earnest money on a deal since their money is locked up in another deal or project we lend the EMD. Loan of $4000, then $6000 will be owed at the loan maturation date.
We expect a 50% return on these investments, each deal and relationship is unique so the structure may vary.
If you are interested contact us for further information
We are actively lending out our money and we are always looking for new places to deploy our capital. We lend our money out to investors, rehabbers and developers for investment projects at a fixed interest. We will look at the deal prior to lending out our money and approve within a short period of time. Every deal is different, we require a property as collateral and will set clear terms and conditions before approving the loan.
