I started my business by using
banks, savings, credit cards, lines of credit, creative techniques with
sellers (like land contracts or lease/options), and partners. But, once
I was self-employed, I was concerned that it was going to be harder to
get loans to purchase properties.
I had always been unhappy about how long the banks take to get the job
done. I had it take 4-1/2 months on a house without a furnace. The bank
didn't know if they wanted to make a loan on that kind of house, but
that is what my rehab business is all about. Buy 'em ugly, cheap and
fix 'em. Just think, if I would have used a private lender on the above
deal, I could have bought, fixed & sold the house and pocketed
$20,000 by the time I got to the closing table with the bank.
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With private lenders, I have the funds available all the time. When a
good deal comes my way, I can grab it because I know the money is
waiting for me. While my competitors are scrambling around applying at
the bank, I've made an offer and closed the deal. My rehab crew is all
over the property like ants before the competition knows what happened.
I love having private lenders for my business.
So, a major benefit is SPEED to purchase a property.
Let's look at another major benefit of having private lenders. My first
private lender was my Mother. My Dad had passed away in 1989 and Mom
had insurance money. She proudly invested it on bank certificates of
deposit (CDs). When I became a real estate investor, I learned about
finding private lenders and so I talked to Mom about it. She loaned me
$5,000 and received 10% interest in return. I paid her monthly just
like her bank did with her CDs. She was delighted and so was I.
As my use of private lenders increased, I learned that some of them
didn't need monthly payments and so I started to structure my loans so
there was no payment until the property is sold.
This is a huge benefit… Think about what this has done to improve my
monthly cash flow. Now my Mom will always get monthly payments from me
because she is retired and depends on that income BUT anyone who can
wait on their money, I'll let the money accrue. So the second major
benefit is improved cash flow because you don't have to make monthly
mortgage payments but just let the interest accrue.
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Investing with the Stars