Private Money Lending: How To Be The Bank and Why | Real Estate Investing | Freedom Vlog | EP. 80

Hey, everyone, My name is CJ and I'm here with Tiffany. And we are really excited today for episode 80 of our vlog series to kind of talk about private lending, what a private lender is and how it functions and, and just how our transaction coordinator, Tiffany, does an incredible job taking all of our investors through the process. So without further ado, I'd like to maybe introduce and if you want to say a little bit about what you do, Tiffany, that may be helpful.

Yeah, absolutely. So I started working with our private money lenders a few years ago. Absolutely love it. It's probably one of the favorite things that I get to do. So part of my role is when we have a new property that we're going to buy, I will look at, you know, what's, what's the, what are the numbers on the property? You know, what are we going to take a loan out for? What's the purchase price, what's the rehab? And I will come up with a, it's really just like a one page presentation. It used to be a little bit longer, but I'll come up with a one page presentation. I will work on finding a private lender to fund that deal.

So when you say a loan, you mean a loan from an investor or a private lender?

Yeah. So that private lender would have, they would get a note and mortgage on the property and they would be loaning us the money to purchase and rehab the property. They're loaning on both of that. Yeah.

So why do we use a private lender and not a traditional bank to get a mortgage on these properties?

Honestly, it's just speed. I'm sure there's other reasons, but the one that I know the best is that private money is cash. Right. So when you say I'm buying this with cash, that can mean cash, that can mean private loan. Anything that takes, you know, I could turn this around. I can close a deal in a week. I could really probably close it in three days if I had somebody really ready to go. But I can close in like a week. I. With a traditional mortgage, I'm going to have to go through underwriting, appraisal, more underwriting. All of the, all of the steps that you have to get to get a traditional mortgage, you don't have to do any of that with a private loan. You know, basically I'm just saying, hey, here's the details on the property. Do you want to fund this loan or not? They're saying yes or no nine times out of 10, probably even more than that. They're saying yes, and we're sending everything off the top. Title and title is the one that creates the note and mortgage. The private lender doesn't even have to do that. So it's just, it's very quick.

Yeah, yeah. I think the other thing is that we also then, you know, certain, our properties are needing a certain level of rehab in most cases and sometimes those properties won't be able to get a loan. Right. Because they're in a certain condition and may not, you know, be up to inspection code, certain things like that. So that's why we have to use this private money so that we can go in and make those improvements in property.

And you know, they have the fix and flip loan programs and all of that. Right. But those are very, very involved and much more stringent than what we need. Right. We need to be able to move as the market moves and make changes to what we're doing to the property and not have the oversight of, oh, don't change what we're doing, you know. Yeah, yeah, don't do it. You know, it's, we're doing what's best to sell the property later on. So in majority of the time this is a, this is a 12 month loan. Usually we're, we're cashing our lenders out, you know, right around probably six months. We're always shooting for less, but can't go 12 months. Absolutely. You know, you know, we run into permit issues. We run into. This property's been vacant for so long that you're going to need to get all of these inspections and things like that to get it up and running and ready to sell. And that's, none of that's new to us. It's not anything we haven't run into before, but it does take a little bit of time. So that's why we do a 12 month loan.

Yeah, that makes sense. So, you know, I think a big thing is this is kind of foreign to a lot of our investors. Right. They've maybe only ever heard of the stock market or actually gotten a mortgage through a bank. So maybe we can like role play for a second. I'm an investor who has capital that's been sitting in my bank account earning.01%. It's, you know, nothing. And I'm afraid of the stock market right now with how much it's been decreasing. And I just want a guaranteed, you know, return. And I've heard about this private money lending via podcast, maybe this one. And I have $100,000 that I want to get to work? How would that work? How would this kind of partnership go from start to finish and maybe the steps along the way?

Yeah, so typically they would, you know, they start with you, right? So they'd actually start with a call with you to discuss, hey, what are your goals? What are you, what are you trying to do? Here's all the different ways that you can put your money to work for you. I know you kind of lay that out for them. And then if private money lending, you know, on a per property basis, which is what I kind of deal with, if that's what they're interested in, then you introduce them to me. At that point, they go on my list of available lenders, which I always hope is short. Right. Sometimes, depending on what we have going on, a lot of deals have just recently closed sold, which is great for us. The available lenders list may be a little bit longer. But you introduce them to me, they kind of go on this list and they wait for a new deal. Then when I have one, I will blast it out and say, hey, I've got this new deal. If you're interested in it, please let me know. Once I hear back from somebody, we can kind of open up a dialogue, you know, at that point or if you have questions beforehand while you're waiting, feel free to ask. That's the, that's really the best time to ask honestly, is when you're waiting, what's the process? What are we going to do? Because once, then when you're ready to go, you're ready to go. You know, you've already got your questions answered and things like that. But when you say, hey, yes, I'm ready, I would like to take that deal. What I would do is introduce you to the title company who's preparing your note and mortgage, who is, you know, the ones handling the funds. You're gonna, you're gonna send the funds to them. They can't disperse until we have closed on the property. It's a nice kind of intermediary, right? You're not sending the funds directly to us. There is somebody holding your funds. If for some reason we don't close on the property, they'll send those back to you. They're not gonna send them to us. So, so it's kind of a safe way, I guess, of making sure everything's.

Done that's kind of closed. So we've closed on the property. I have a first lien on the property and you guys are going to start the rehab. And then how often am I hearing from you, when do I get my money back? What's that look like?

Yeah, so I typically provide updates to all of our private lenders around. Well, I try to do once a month and I do once a month, so it's typically around the 20th. So just depending on, you know, what I have going on that month, when I can get those done. It's right around the 20th though. So every single month I'll provide you an update and it may say, you know, hey, this property's vacant and it's just started rehab. That may just be the update, you know, or it's in rehab or if I need to give you some more details, you know, hey, this had permit issue, but here's what's on going, going on. I'll certainly do that. This property is finishing up, it's marketing, getting ready to market for sale. I just kind of keep you updated every single month where it's going. Now once the property does start to market for sale and we have a contract and a closing date, I tend to wait until about 2 weeks ish before closing, then I'll send you the payoff statement. The only reason I don't send them early is because closing dates change. So I can send you a closing date of the 30th of the month and it's going to go to the 30th of next month. And that just happens with financing and things like that. Closing dates extend. So I wait until about two weeks before I send you a payoff statement that will have your full loan amount, a interest calculation for the full life of the loan. So it's one big balloon payment at the end and then, you know, small wire feed reimbursement. Because your banks charge you the wire money out, you'll sign that, we'll get that sent off the title and then once the property does close, they will send you that full balloon payment.

Gotcha. Yeah. I mean it sounds relatively passive for me, right? It's the front end. I get some updates along the way and then at the end I just received my money back plus the interest. And all the while it's backed by real estate. So I mean, for me as the guy who's holding this money in my bank account, it sounds really attractive right now because I'm afraid of the stock market with how much I've lost in the last six months and I'm just looking for a stable return. So what do those interest percentages typically look like for our investors? How do they work?

I believe they're 68 and 10 right now. Correct, correct me if I'm wrong, but 50,000 to about 99,000 I think is 6%. 100,000 to 299,000 is 8% and then 300,000 and up is 10%. We do have some that have a little bit higher returns. Those are for like larger projects or longer hold times or things like that. So I think they can definitely hear about those things from you if they're interested in, you know, longer hold times and things like that. I know we definitely have projects that have those. But for just the normal, here's your 12 month loan. 6, 8 and 10 is our interest rate. So and that's, that is how much money you have available to lend us. So if you say, hey, I have 300,000 because I want, you know, I want 10%, I'll give you 300,000. Well, if I give you one loan and it's 100,000, I'm going to give you that, I'm going to honor the 10%. Right. But when I give you another loan that's 100,000, the expectation is that you would take it because you have 200,000 more. Right. So it's based on what you have available. If that ever drops down, you know, say I said, hey, I have 300,000 and then all of a sudden I'm sorry, I only have 100,000. Well, that interest rate is going to come back down then for future deals.

So that's what makes sense. The other thing that I want to point out is we work with a lot of different types of money. So and what I mean by that is we use personal cash that may be in your checking or savings account, but we also use, we work a lot with maybe entities. So LLCs that have capital they're looking to get to work as well as retirement accounts. So a lot of our investors use self directed IRAs, solo 401ks because they are getting that tax advantage there and it's a more stable return than maybe what they're getting in their mutual funds that they could invest in otherwise. So yeah, that's just one other thing I'd like to call about our private money situation. Anything else you want to tell people about the experience or you know, why to work with us, anything like that?

Yeah, I mean, why to work with us is easy. I mean we have paid back every single lender in full no matter what, on every single deal, no matter if we lost money. It doesn't matter. We've paid every single lender back in full. I actually recently did a private money loan with the company. So, you know, we've always been a little bit wary of stuff like that. You know, my money sits very safely in my savings account, like you said, earning no interest. It's very safe to me. Right. But we took a leap and said, let's try it. Like I've seen, I've seen what investors are making. I've seen what, you know, what kind of returns you're getting. This is awesome. Let's just, let's just do it. And we pulled the trigger and went with it and did our first loan with the company. Obviously I didn't update myself every month because I was getting updates every week sitting in all the meetings and my loan was sometimes taking long and I said, take as long as you want. Right. I'm earning money. But it was very fun. It was just cool to get to experience that. And I actually was able to talk to a lot of lenders about that, you know, and say I trusted my own money with this, you know, this. I think that's kind of a testament, you know, I see, I see what's happening with the money and I still trust in my money with it. So I think it's a very good investment. Easy way to get your, your feet into real estate, you know, if you are nervous about that.

So, yeah, of course. And that's how I feel as well. I'm, you know, I'm utilizing our property management IPM for a property, kind of testing them out. I'm not too happy with my other PM company and I've loved my experience so far and I think investors appreciate. Oh, you actually own real estate as well and you're utilizing this service that I would be using and you're choosing to use it in your own market. So I think that's a huge testament to like the company if you're willing and wanting on your own accord to utilize their services. So yeah, that's great. Well, no, I don't want to keep this too long. I really appreciate you joining us today on vlog 80. I know we end every vlog with a certain saying, so invest smart, live happy. Awesome. Thank you guys for joining us today. Let us know if you have any questions and feel free to book a meeting with us. Bye.

Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.