AIPIS founder, Jason Hartman, a veteran of thousands of real estate deals, is excited to bring an under-the-radar investment opportunity to AIPIS students and members. You may have heard the term before – hard money lending – as it is often referred to in the media, though we prefer to call it exactly what it is: private money lending. The lending of money from individuals, like yourself or clients, as distinguished from traditional sources like banks, savings and loans, or mortgage companies.
There are a couple of ways you, as a real estate or mortgage professional, can take advantage of Jason’s strategy. The first would be to actually loan money yourself. Jason and some of his clients typically earn 12.25% interest over the course of a short-term (around four months) loan. Add onto that a $500 funding fee paid from the borrower and this starts to look like an attractive proposition in today’s chaotic Wall Street investing climate.
The second way to profit from private lending opportunities is to let your clients with money sitting on the sidelines know about it. Believe us, there are enough borrowers to go around. At this point, you’re probably wondering just who these mysterious buyers are? Actually, they aren’t mysterious at all but are local market specialists hand-picked by Jason to scout properties to recommend to his Platinum Properties Investor Network. The business model for these local specialists is simple: buy houses at a great price that need a little work, rehab them, and then either sell them locally or put the best deals into the network for Jason’s clients. The problem with this process, in the eyes of the traditional lending industry, is that such properties as this fall into the “transitional” category, which means it is difficult to qualify for normal loans.
That’s where private lending sources step in to fill a market need.
As we already mentioned, Jason and some of his clients have already been making this kind of short-term loan to local market specialists for a while now, with excellent results. One thing to keep in mind with hard money loans is that they are not secured by the usual creditworthiness factors like income to debt ratio. Instead, your loan will be secured by the underlying value of the property itself. Though far from a wild-eyed leap of faith, this sort of loan is seen as riskier, which explains the substantially higher interest rate you earn as compared to a standard bank loan which runs only a few percentage points these days, thanks to a housing market still languishing in the cellar.
As long as Bernanke, Obama, and the rest of the Hole-in-the-Wall-Gang are trying to fix the economy, expect traditional interest rates to stay low. This is great for those buyers who do manage to snag a traditional bank-financed loan, though not so good for the bank itself. Don’t cry too hard for them, though, there are plenty of miscellaneous fees your friendly neighborhood loan officer can slap on to make up the difference.
Something else we really like about short-term private loans is the simplicity. As an arrangement between private citizens, there’s no need to involve a bunch of government regulators with alphabet soup acronyms. So, how do we suggest you make use of this information? Maybe you prefer to make a few loans yourself to get a feel for how the game is played. Once you’re comfortable with the process, it might be time to begin talking to a few clients about it. The key here is to position yourself as not simply a real estate agent or mortgage company representative.
You aren’t in the property business, remember, you’re in the service business, and the more services and actionable information you can provide a client, the more likely he’ll dial your number when he’s next in need of a trusted partner to complete a property deal. There’s a good chance you will meet with some skepticism and initial resistance at first, because the idea of hard money lending, as a source of last resort, has suffered from its share of bad press. The difference is that the borrowers Jason is talking about are not desperate homeowners trying to avoid foreclosure. These are successful businessmen and businesswomen who don’t fit neatly within the government’s idea of a “good risk” despite the fact they might actually be a safer bet than the millions of people who walked out of banks with mortgages for so many years and straight into foreclosure.
For more information on how to get started in private lending through Jason’s connections, call his office at 949-200-8009. No hard sales pitch at all. Just good, profitable information for those ready to take advantage of it.
The AIPIS Team
Flickr / 401k