PRIVATE LENDING

  • SECURED BY REAL ESTATE.  Now this becomes useful when you want to get your money back if the borrower decides not not pay.  
  • PASSIVE.  A performing note produces monthly income similar to distressed mortgage note investing however for a shorter period of time….typically 3-36 months.  And with the right servicer you can have them collect the payments, taxes, insurance and send out 1098.
  • HIGH YIELDS.  The yields are higher than the stock market average over time.  We like to use Compound Annual Growth Rate (CAGR) as a Key Performance Indicator (KPI) in our business and you will see that the CAGR for the S&P500 (with dividends) is typically much lower.
  • CLEAN COLLATERAL.  Since you are essentailly originating a new note and mortgage you know how it has been underwritten and do not have to correct the collateral defects as is the case many times with buying institutional debt.
  • CLEAR VALUATIONS.  Since you can physically inspect the assets interior and exterior you have a higher confidence of value and confidence in the assets overall condition.
  • SET AND FORGET.  Private Lending is unlike other investments where you have to constantly have to monitor external influences.
  • DiVERSIFY RISKS.  Private Lending on assets in various geographical locations can help to diversify and reduce exposure to just one area.
  • MONTHLY PAYMENTS.  Private lending results in a consistent monthly passive income stream which can also be collected by a servicing company providing the private lender with practically care-free investments.
  • UPFRONT POINTS.  Private lenders are able to charge points upfront in the form of an origination fee.  A point is 1% of the loan amount and typical points range from 1-5 points.
  • SELL NOTE PARTIALS.  You can sell a portion of your note and recover to some of your upfront capital.  For example, you sell of a portion of the payments you are going to collect. The note will then revert back to you and you collect the remainder of the payments.
  • FLIP THE LOAN.  You can create a private loan and then immediately sell the loan for a profit.
  • RATES.  Private loans are typically interest only for the life of the loan.  Rates range from 9-16% and sometimes higher for risker borrowers and/or projects.   
  • DEFAULT.  Default may result in foreclosure to get the asset back and requires additional capital.  However, the lender may deploy other strategies to either keep the borrower paying or get the property back.  Examples include loan modification and deed in lieu respectively.
  • BANKRUPTCY.  Bankruptcy is always a risk when buying mortgage notes or private lending.  Bankruptcy can be a “good thing” since the borrower must follow a structured payment plan in Chapter 13 which may facilatate the lender in getting paid.  Chapter 7 may delay payment for a few months but ultimately the borrower will have more money to pay you since other debts discharged.