How Does Private Lending Work?
Essentially, a private lending program (also called “Trust Deed investing” ) allows you to take control of your investments, IRA’s, and retirement accounts to further build wealth rather than settling for mediocre 1-2% returns.
So, what is a Private Loan?
A private loan is basically a loan made to a real estate investor that is backed by real estate.
What do you mean “Backed by Real Estate”?
When you make a private loan, you are given a first mortgage (exactly like a bank…but you become The Banker!) that secures your legal interest in the property thus securing your investment. We are not talking about high Loan-To-Value (LTV) ratios the banks and savings and loan institutions make on homes (which is what got them in trouble). All of our private loans that we offer our Private Lenders are low LTV ratios to increase security of the loan.
As standard our LTV ratios are under 70% of the value of the property securing the loan and frequently as low as 60% to 65%. This means additional security on the investment for you so you are always in a good position.
As an example, if the real estate investor purchases a property that is valued at $100,000, our Private Lender will loan at the most $70,000 dollars on the property. That’s a 70% loan-to-value ratio.
A low LTV approach is more conservative from those taken by conventional institutional lenders (the ones who are in trouble right now and all over the news) who loaned at 90-100% LTV, often leaving no wiggle room should the borrower default on making the payments. When you work with a large LTV cushion, you’re placed in a much more desireable position as the private lender.
You, as a private lender have to determine your own goals; however, we suggest you never lend more than 75% LTV which is a very conservative number aimed at providing a cushion to work under. As a lender, it is in your best interest to minimize risk and maximize return and this is why a loan should never be made without a 25% safety net. We don’t violate this rule, because your security is at stake and also our business depends on referrals. We want you to make money so you will invest with us again and again.