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Posted over 10 years ago

Confessions of a Private Lender.

I am a private lender, have been for nearly 4 years. I am not wealthy. The first deal I funded was for $50,000. That may seem like a lot of money right now but I assure you that if you follow a real estate investing plan you may soon find yourself in control of considerably more than that. I don’t care who you are, you probably come into contact with many people every day who have $50,000 and many of them will be happy to lend to you if you find an appropriate deal and present it correctly. Really.

Why Do I Lend?

The easy answer is to earn a good return on my money. On that first $50,000 deal I earned $920, ~1.8%. The original loan plus the interest was paid back in 32 days, an annualized return of nearly 21%--definitely a good return. This return was earned in my Self Directed IRA (SDIRA). My SDIRA is a Roth IRA. This means that my return was not taxable—a considerable advantage. You know people who have IRA’s and though they may not have them structured as Self Directed IRA’s it is very easy to convert an IRA to a Self Directed IRA. If you help someone learn how to do this they will need to find vehicles to invest in. They may be open to investing with you.

I am also a real estate investor and lending makes me a much better investor. My real estate portfolio contains single family homes, multi family property and vacant land. I have done rehabs to sell and rehabs to hold for rental income, purchased REO’s and short sales. I am currently involved in my first new home construction project. I have funded short sales and REO purchases. Some of my partners (borrowers) are flippers, some buy and hold. Real estate investing is a rapidly evolving field. Regulations, building codes, lending guidelines and housing outlook all are in an almost constant state of flux. It helps to be in the market to keep up with the changes. With my deals and my partners’ deals I am always in the market. My partners have introduced me to some novel ways to profit from opportunities that I may not have seen as clearly or as quickly on my own. My partners share many details of their business models with me. Most are very good models or I would not have partnered with them—some are excellent. I have participated in dozens more deals with my partners than I would have by myself. I gain insight into improving my business and instead of paying to attend a seminar I get paid. This is my favorite way of learning.

                                                                   

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Comments (6)

  1. Very well articulated...to the point. I have heard of you several times on RDI and your Story time with Jeff series.. 

    For me I also need to read up on what IRA and Roth IRA would mean. But whatever that is seems like SD version of it would mean you get to choose what and how to invest that to. Of course there will be more gottchas and restrictions to it.. 


    1. Thanks for your comments. Tommy and I released the first podcast of the second season of Story Time. We subtitled it "Barrel Strength Tales of Real Estate Investing". I don't think I can post a link here but it can be found on the Renegade site.


  2. Story Time with Jeff sent me...your blog is Bad ass LOL!!! I did like it for real. It was informative and entertaining.


    1. @Candace Cooper, I am thrilled you are listening to Story Time with Jeff. It took a bit of prodding to convince me to do that podcast but it is getting a bit easier and is more fun than I expected. I appreciate you taking the time to leave your comment. You brought a broad smile this morning. Thank you.


  3. Thanks. The terms vary on almost every deal and/or with almost every borrower or situation I fund. If the deal seems too risky for me I either walk away, fund a lower percentage of it, or change the terms so that the deal meets my risk tolerance. I have funded flips that were completed in 3 days and buy and holds that made payments on time every month for a year. I was well compensated for the risks in both cases and neither scenario seemed particularly risky. Most of my deals have been around 2 to 6 months in duration. I have extended to 1 year a few times. I currently have a couple notes with 5 year terms in my portfolio. One can never know how long the notes will be outstanding before they are paid off. These 5 yr. notes were purchased from a mortgage broker. I have never originated anything that long.


  4. Great post! Do you feel that lending on flips is more or less risky than buy and hold? Do you treat them with different terms based on length? What is the longest note you have ever held?