I had an interesting experience recently. I went to lunch with a banker after I had inquired about how a business line of credit worked since I had never applied for one before.
I was expecting the rep to showcase what products the bank had for investors and explain what kinds of qualifications and stipulations would go along with each.
That’s not what I got.
Lunch was uncomfortable for me. The food was great, but the interactions with the bank rep felt less like a here’s-what-we-can-do-to-earn-your-business type of meeting and more like I was in an interrogation.
This rep wanted to know the who, what, when and how much of every facet of our business. This development caught me off guard for two reason. First, as investors, we keep information like that very private. Second, the bank had our business accounts, and I assumed they would’ve researched us prior to going to the lunch appointment.
At the end of the day, what the rep had to offer was a “business line of credit” that would have an interest rate guaranteed for only three years. It had to be secured in a first lien position on a property, and the bank would only extend the credit line on a certain percentage of the appraised value (and yes we would have to pay for the appraisal along with all the bank origination fees).
The reason I put business line of credit in quotes earlier is because the bank basically offered us a mortgage with a three-year balloon as evidenced by the stipulation that we secure the credit line in first position on a property and the rate only being good for three years — that wasn’t what I was looking for.
On the ride home, I called one of my investor friends to relate my experience. She agreed that those weren’t favorable terms and asked why I hadn’t just approached a private lender.
Curiosity was the main reason. You see, I’ve never applied for a bank loan to buy a property and didn’t know the process. I have some friends who have had success using bank loans to purchase their investments, but we’ve just always used private money.
Let me explain what I mean by private money.
We buy all of our houses using funds loaned to us from private individuals who either have a retirement account they wish to grow or who have been successful savers.
Our private lenders come from all walks of life. We have commercial pilots, retired business owners and medical and military personnel as lenders. We also have had mechanics, utility workers and sectaries make us loans.
All of them have a few things in common. Typically, they know very little about investing in real estate, have always wanted to, but don’t have the time to devote to it. That’s where we come in. We’ve been buying, selling and renting houses since 2012 with a fantastic track record. Our process allows our lenders to leverage their money with our knowledge.
Next, they’re looking for a better return on their money than they can find in bank CDs or in the stock market. According to bankrate.com, the national average certificate of deposit rate for a five-year term was 1.28 percent as of August 1 of this year. We’ve been able to double, and even triple, what our lenders have been offered for these type investments.
And finally, they’re looking for security for their hard-earned retirement dollars. And since we can secure their funds against real estate, our private lenders are in a great position.
Consider this: if you invest in a company stock and then that company shuts their doors, how likely are you to get your initial investment back, much less make a profit?
When private lenders make a loan they can secure with real estate, even if the worst were to happen and they had to foreclose on the borrower, they will still receive the property used for collateral. They could then either rent or sale the house to recoup their money and possibly turn a profit. You won’t find that kind of security in other investments.
Long story short, if you have ever thought to yourself that you need a better investment vehicle, consider becoming a private money lender to a real estate investor. And if we can help you in any way, please give us a call.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.