Private money explained: five things every real estate investor needs to know about private money.

by | Indy Anna, Real Estate Investing

Indiana real estate investors: private money explained, the top five things every real estate investor needs to know about private money.

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More on some BigReia Quarantine Money!

Indiana real estate investors: private money explained, the top five things every real estate investor needs to know about private money.

Indy Anna Explains…

What are the basic terms I need to know about private money?
Can you explain private money costs and rates?
What are the basics of private money?

Remember you DO NOT NEED any private money to build your business.

– This is so that you can explain it well to others and for the deals that you help your people do
– When building your real estate business you NEVER need to put any money down or risk your credit, at least not when you do it our way
– This class is to help you understand how private money works NOT for you to get loans

Who is a PML?
– Can be anybody with money lying around that they want to get a return on
– The ones “in the game” try to act more like HML (Hard Money Lenders) and that trend is what today’s question is about
– What I’m about to cover is how PML are when you do NOT train them correctly, this is NOT what you should do but this is just so you know

The five basic terms:
Points
Interest Rate
Purchase Cost/s
Term
Fees

1.) Points:
– This is the up front cost that your PML (Private Money Lender) will want to get paid up front
– Usually this is 1-2% of the whole loan, so on a $100k deal this means you will pay $1,000 – $2,000 up front
– I always have my investors borrow this just like it is a rehab cost so we just add it to the loan so it can be more “zero down” for the investor

2.) Interest Rate:
– This will depend on whether you are doing a quick flip (3-6 months) or a long term deal like rental (1-3 years or longer)
– On flips the interest rate will be about 10-12%
– On long term deals the rate will be about 6-8%

3.) Purchase:
– You want to borrow for the purchase price, rehab money, closings costs and holding costs.  This way you borrow it ALL and they know this ahead of time.
– The TOTAL of that should not be more than 70-75% of the property value, there are some exceptions but just be safe and keep it around 70-75% LTV (Loan-to-Value)
– This means on a $100k property the total amount should not be more than 70-75k, see my other video about doing this with much higher priced properties (it works the same with the same concepts)

4.) Term:
– This is how long the loan will be for
– This can be flexible depending on if you are doing a flip or a buy and hold
– Usually this will be defined early as 3-6 months or 1 year mid-range is 3-5 years and long term is anything more than 5 years usually.  Remember the longer the loan the lower the rate you should get.

5.) FEES:  These can add up so it is important to know what these costs are AHEAD of time, here’s a quick list:
– Wiring fees to wire money to your title company – $25
– Self Directed IRA fee, this is what they are paying to take the money out – Usually $500 – $1,000
– Funding fees, this is just something extra they add on – $500
– Attorney fees – $300 – $500
– Inspection fees: $300
– Contractor fees: $500
– Brokerage fees: $1,000
– Draw fees, to get the money out: $1,000
– Closing fees: $1,500

A PML or a HML (Hard Money Lender, I’ll cover this in the next class) may try goofy stuff:
– They may add fees out of nowhere or sneak them in
– Remember you want a LONG term relationship where you know everything up front
– Also keep in mind that with a PML if you do it the way we train you then YOU will set the rules not them and you’ll pay NO fees and have NO required appraisals, I don’t believe investors are paying for this stuff LOL

They can add even more fees so make sure you know ahead of time:
– Remember this is ALL negotiable and you can make changes as appropriate
– The number one thing a PML wants is a steady stream of income, so prove that you are that and a lot of headaches (and fees) disappear
– Remember that you need to know this to help your investors and OTHERS do this and NOT you

I hope this helps, those are the five main things you need to know about private money, if you have any questions email me at Love @ BigReia.com.

Also as you guys know I’m also a PML and a HML so if you have a deal anywhere in Indiana, Michigan, Ohio, Kentucky, Minnesota or any of the markets I’m in I got you covered just email me.

Quick Dialog lesson:
“My friends and I are building the largest special needs private lending bank in the world.”
I started saying that a few weeks ago and the first week I got three times as many deals every week so far: Compliance Dialog always WINS!

Thanks so much!

Make the Universe Smile.  =  )

~ Indy Anna

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