Have money....now what?

Real Estate Investing Real Estate Financing
1

My wife and I regularly watch house flipping shows and we are amazed at the amount of money they make. That being said, we are also realists and believe a more or just as popular show would be one in which house flippers lose their money simply because they failed to follow strategies outlined throughout this website and others (you heard that idea for a show here first!)

We don’t have the skillset to be flippers. The only things I know how to do are painting and tile work. Everything else would have to be contracted out, thus reducing profit. We also have full time jobs so it just seems unrealistic to do flipping.

We are looking at becoming private money lenders. In regards to that here are my questions:

  1. Is it true that we can only lend up to 10% of our net worth? If we have $100k in the bank we can only lend $10k?
  2. Who determines our net worth?
  3. What kind of returns are realistic?
  4. Any private money lenders on here that can provide some advice towards getting started on a first project?

$10k isn’t going to allow us to fully fund a real estate investor for a project so not really sure how it would work.

Thanks for your time in reading this. Any comments/advice are most appreciated.

Bill G.

2

Private money (Hard Money) lenders are in most states licensed and under certain rules and regulations about what they can charge, etc.

I suggest you go to your local courthouse and ask the law librarian to assist you and get the statues that apply to hard money lenders in your state.

3

Never heard of only being able to lend up to 10% of your net worth.
For a public offering (including a real estate hedge fund) the “Accredited Investor” SEC Rule applies.

An accredited investor, in the context of a natural person, includes anyone who:
earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).

Private offerings are generally exempt from these requirements.
An example would be lending the money to a friend to buy an investment house.

You can be a private lender and manage a modest $100K loan in the hopes you will get your payments as agreed. If not, you either get the property back or you foreclose.
If you like the private lending route, you might want to look into transactional funding. Much more profitable, short-term and handled by the title company.
If you think the passive lending option sounds more attractive, there are several crowd-funding companies out there that offer around 10% yearly on your money.

You can also become an investor in the deal by funding a Land Trust in which you are one of the beneficiaries.
You can have an active or passive role in the investment depending on what you prefer.
Being the Trustee and/or having a controlling interest in the Trust, you don’t have to worry about non-payment by your partner and a long and costly foreclosure action.

4

There is no such rule that limits what you can lend someone else for commercial purposes. Typical rates at 10-12%, 3-4 points up front. Make sure that you verify:

  1. The person - their background, experience, references, etc

  2. The property - get an independent appraisal (paid for by the borrower)

  3. The documents - good a lawyer to draw up a good template for loan agreement, note, mortgage (or deed of trust), closing instructions, title insurance, etc.