23 Feb INVESTORS’ CORNER: Why I invest in real estate as a private money lender
The opportunities to invest in Real Estate are nearly endless. I have previously invested in the development of a commercial building, residential developments, builder spec homes, builder model home sale/lease back, flips, new home builds and residential rentals.
Most recently I’ve gone in a new direction of investing by funding this type of opportunities along with other investors, aka Private Money Lending (PML). I no longer own the real estate; I just fund the transaction. It can work just like “the bank” or a joint venture. The objective is to create a decent, secure return on investment with cash flow, right? Private lending can create that opportunity. The most important aspect of private lending is WHO you are doing business with and secondarily are the facts of the actual transaction.
Character and a reputation for completing such projects successfully are the first ingredient in the formula. The second ingredient is having a sound project to fund. This could be a wholesale flip, a wholetail flip, a turnkey rental flip, a residential flip or a knock-down with new build construction. Each opportunity presents a level of dollar investment and time commitment with the potential ROI (return on investment), commensurate with the time and dollars at risk.
Most opportunities are evaluated in a similar fashion. Does the purchase price plus any rehab cost equal 70% or less of the after repaired value, aka the market value? If so, this condition will mitigate the financial risk. Are there multiple possible exit strategies for the property once completed?
All the PML opportunities are secured by the recording of a deed of trust (mortgage) against the subject property in the first lien position. This secures the promissory note against the subject property. Funding is wired to the closing attorney where title has been examined, insured and documents recorded at closing. Then, once the project is completed and sold, the closing attorney wires the payoff back to the PML lending party. For my wife and me, this real estate investment strategy has produced exceptional results both inside and outside our Self-Directed IRAs.
Don Harris is a member of Metrolina Real Estate Investors Association, which provides education, mentoring, and networking for real estate investing in the Charlotte region. For more information, visit www.MetrolinaREIA.org.