Private Lending FAQ

How do I know my money is safe?

Like any investment there is a certain degree of risk.  Pine Financial Group, LLC does everything it can to reduce this risk to a minimum.  It is unfair to compare this type of investment to treasuries or CDs that are fully backed by the US government but let's take a look at why Pine Financial Group, LLC or its owners have never taken a loss.

• We only loan up to 70% of the property value. In a worst case scenario the borrower stops paying and you would get a house for around 70% of the value. We understand that values fluctuate which is part of the reason we do short term loans. It is unlikely that we will see significant property value declines during the term of our loans. From our experience, you should be able to rent the house with paying a property manager and still get a return of 14% or higher. Or you can sell the house to recoup your initial investment and interest due. We have a list of buyers that would be interested in these deals if we ever take a property back.
• We fully qualify the borrower. Our success is determined by the success of our clients. We do not allow clients to borrow money from us if we don't think the deal is good or that they will be ok if something goes wrong. We document both income and liquid assets they have available to complete the project.
• We require the borrower to maintain hazard and title insurance to protect against the unexpected. You as the lender will be listed on both policies.

What Paperwork Is Involved in Becoming a Private Money Lender?

The paperwork is quite simple, yet provides strong legal protection for your private money loan. There are two documents that set up your loan terms and security. First, a Promissory Note is signed by the real estate investor as evidence of their promise to pay your loan back.

The Promissory Note identifies the terms of the repayment, the length of time of repayment, the interest rate, the payment schedule, etc.

Second, the Mortgage or Deed of Trust is signed by the real estate investor and recorded in the public records by the closing attorney or Title Company to secure your loan against the property. Some states use mortgages and other states use Deeds of Trust.  Colorado can use either. 

Now, just so you don't get confused. A "Deed of Trust" is NOT the same as the Deed. The Deed is the evidence of ownership. It is recorded in the public records and shows that the real estate investor owns the property.

The Deed of Trust is then a second document that is recorded along with the Deed and shows evidence that you have money invested and secured against the property. It is your safety net.  If the real estate investor sells the property you have a piece of paper on record that notifies the world that you are owed money and you will get paid.

We also have the borrower sign a side letter.  This letter breaks down the terms in the note and deed of trust so that anyone can understand them.  This is not necessary but we prefer to make sure there are no confusions. 

What Happens if the Real Estate Investor Stops Paying on the Private Money Loan?

As the private lender, you have a certain number of rights if the borrower stops paying. In general, you could:

1. Call the loan due and accelerate payment (call for an early pay-off in full)

2. Foreclose and take the property

3. Go after the borrower legally

4. Negotiate with the borrower on new terms of the loan

Every state has its own little nuances when it comes to collecting on a loan that is in default.

As the private lender, the importance of hiring an attorney or working with someone with experience to help you weed through the foreclosure process should not be overlooked.  Pine Financial Group, LLC is experienced in negotiating with borrowers and collecting on notes. 

If you choose to foreclosure or ask that the borrower turn the property back, you can simply list the property at a discount and sell it quickly to recoup your money.  Remember you will be protected with a 70% LTV. 

What if There is a Renter in the Property and the Borrower Stops Paying?

This would be a great situation.  You can either keep the property with a paying tenant in place or sell the property to another investor with the tenant in place.  Properties with paying tenants are much more attractive to investors than vacant houses. 

Why Would a Borrower Ever Pay Such a High Interest Rate?

There are several reasons a borrower would pay this high interest rate.  Let's look at a couple:

1. If the property is in need of repair many times a conventional lender will not loan on it. Conventional lenders want the home to be in livable condition. Something as simple as a missing stove could cause a lender to deny a loan. In these cases real estate investors need lenders that will finance the property understanding that no one is living there and that the property is being repaired.

2. Our clients treat this as a business. The more properties they can complete the better their business will do. Conventional lenders require large down payments and will not fund the repairs. Our clients understand that by borrowing more money they can do more deals and make more money. It is worth it to them to pay a higher rate to get more deals done.

3. If the real estate investor plans to keep the property as a rental using a loan like this is a fantastic strategy. If they pay all cash for a house they probably will not be able to get their cash back for 12 months. Conventional lenders do not want to do refinances with the borrower getting cash unless they have owned the property for 12 months or more (even if it is cash they put into the property.) They are concerned with rapid appreciation but what they don't understand is the value has increased because of the repairs that were made. Using a private money loan allows them to get the property, fix it, and refinance with no title seasoning. Sounds funny, but a conventional loan is ok with a refinance within a year if the borrower is only using the new loan to pay off another loan.

4. Quick closings. Conventional lenders can take four or more weeks to get a loan done. Sometimes a real estate investor can get a much better deal if they can close fast. Fast closings means there is a higher likelihood there will be no problems in the process.

What If I Need My Money While It Is Tied Up In a Loan?

Normally you would not want to get your money back after you make this loan until the borrower pays you back.  Our loans are only nine months and most payoff sooner than that.  Let's face it, the borrower is paying a really high rate of interest so they want to get it paid off as quickly as possible.

If you do need your money you have the option to sell your note.  There are note buyers readily available and you can find them by doing an internet search for note buyers.  Be prepared to give them a discount on the face value of the note so they can realize their target rate of return. 

Can I Really Do This on My Own?

Absolutely, but you will need to find a good real estate investor to work with and make loans to.  Or you can enlist the service or a good mortgage broker to help.

As a real estate finance expert and licensed Colorado mortgage broker, we work exclusively with real estate investors.  We pull in a large amount of qualified leads looking for private loans.  Each deal is fully qualified with an appraisal and full loan package on the real estate investor before we ever present the deals to our private lenders.  Most of our deals are from repeat business and we have relationships with a large amount of qualified and experienced real estate investors.   We fully service each loan and do full property inspections to ensure the property is being repaired as agreed.  All this is at no cost to you.  You will earn a handsome 14% on each deal you fund through Pine Financial Group, LLC.

Want more information?  Contact us to set up a one on one meeting or download our FREE Special Report: Private Lending, A Complete Guide to Safely & Profitably Lend Your Money for High Returns in Real Estate.