How do I get the capital I need to close the deal? This is a question I’ve been asked many times. There is always Hard Money, but this comes with a high interest rate and increased pressure. The other option is Private Money. So, what is Private Money? How do I find it? How do I structure a deal with Private Money? These are all great questions that I want address in this quick tip.
Private Money is not institutional money. Generally, Private Money is from a “private” source. Usually, this is an individual, or a group of individuals, who have money they would like to invest for greater returns. These terms are a bit easier to work with, but they’re harder to come by. Maybe 6% to 12%, with 0 to 2 points up front.
Private Money can come from many sources, including family and friends. It is best if you can find Individual Investors looking to diversify. But, how do you structure the deal with Private Money? Here is what I do: Be sure the Private Money is ready beforehand and be sure to never touch the money. How? Easy.
The Private Money lender always sends the funding directly to the Title and Escrow Company, who then sends a Note and Deed of Trust back to the Private Money Lender. This secures their money by placing them as 1st position Lien, in case I ever balked. I never have and I never will, but our secure method lowers risk, and therefore lowers the interest rate they need to make in return. When the house is finished, then sold, and the deal is finally closed, we make sure to send the loan plus interest and points directly to the Private Money Lenders from the Title and Escrow Company. We get the difference and this is our profit on the job.
Like I said, we never touch it, and everyone makes a few bucks along the way.