How I Became a Hard Money Lender

Unlike other investors, my venture into real estate was a natural extension of my secondary business as the IP Ware software developer. However, opportunity and perseverance beget wealth, or at least a decent side income.

Aside from my ventures into lease optioning residential property, I and my partner have managed to acquire a number of properties with our own credit. However, when looking at our finances and the return we were getting for the amount of effort involved, we both decided there must be a better way. That is when it occurred to me. Instead of trying to leverage our existing assets for a diminishing return, perhaps we could be the bank.

Here is the scenario as it has played out. First of all, we control a decent number of properties with our own credit. Most were purchased with 100% financing using multiple capital sources. However, each contains only a primary lean and is financed using standard mortgage terms. Subsequently, there is a 20% secondary credit position available on each of these properties.

Now normally, an investor would use this 20% equity stake in the existing properties to leverage the purchase of more properties. However, our approach has been a bit different. Because interest rates are so low, we can borrow against the 20% equity position in each of the properties and loan this money to investors who need short terms financing to control and rehabilitate properties. Essentially, we are using our existing properties as collateral to borrow money at the going finance rate and loan it out at substantially higher rates of return. We have become the bank.

For investors who need money fast, this system works out beautifully. They pledge their property as collateral, and we loan out up to 75% of the purchase price. All parties benefit, and investors with opportunities that do not need long term financing have a source of funds to do their deals. Everyone wins.

If you are thinking of setting up this type of program yourself, there are a significant number of legal caveats that you must be aware of. The first is the company funding the second lean holder position on your existing properties must be aware of and amicable to what you are doing. This is a legal requirement of which there is no way of avoiding without committing fraud. Next, the usury laws in your state determine the maximum interest rate you can charge your customers. There are a host of additional laws that are more specific to the lending process, but a good lawyer will help you work through them.

Regardless, there is a decent return to be made helping others do their deals. Use your existing properties to secure the funds to lend, and make sure you have an experienced lawyer to help you sort out the details.

About The Author

Barrett Niehus is a principal for IP Ware Commercial and Residential Real Estate Investment Analysis Software http://www.freetrainer.com

---

Foreclosure Scams To Be Aware Of

Homeowners facing foreclosure should be aware of unscrupulous lenders and... Read More

Are You A Victim Of A Predatory Mortgage Foreclosure?

Help is available to borrowers who have claims against their... Read More

A Guide to UK Buy to Let Mortgages

Essentially there is little difference between the process that one... Read More

New York Refinance - Refinancing in New York

If you are looking to refinance in New York, it... Read More

Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate Mortgage

Adjustable rate mortgages can be very tempting to home buyers,... Read More

Mortgage Marketing

W. Edwards Deming said "Marketing and innovation are the only... Read More

Mortgage Advice

In the US today more households have mortgages than ever... Read More

The Best Tactics for Getting a Quick Homeowner Loan

Trying to find a quick homeowner loan can seem difficult... Read More

First Time Home Buyer Loans Made Easy

When it comes to firsttime home buyer loans, a little... Read More

What On Earth are Home Equity Loans?

Home equity loans are one of the most common types... Read More

How to Find a Direct Homeowner Loan

If you've been thinking about applying for a direct homeowner... Read More

A Guide to Finding the Cheapest Home Improvement Loan

To find the cheapest home improvement loan that you can,... Read More

Types Of Home Equity Loans

There are two broad types of home equity loans:Term loans:... Read More

Online Home Equity Loans: A Basic Glossary

Home equity loans can be a great idea for individuals... Read More

Desperately Seeking Good Leads, The Adventure Driven Loan Officer

As loan officers, the word "lead" is by far one... Read More

Bad Credit Mortgage Refinance - Should I, Shouldnt I?

It is a common financial scenario across households in the... Read More

Mortgage Glossary of Terms

A brief list of some of the most common Mortgage... Read More

Mortgage Refinance - Tips to Help You Cut Fees and Costs

Saving money through a mortgage refi is more than just... Read More

Home Loans

Buying a home remains the great American dream. Home ownership... Read More

Composite Credit Report Score Simplifies Mortgage Issues

Do you want a mortgage loan for your new home?... Read More

How to Find Cheap Home Improvement Loans

If you have home improvements that you'd like to see... Read More

Online Mortgage Brokers - What You Might Not Know About Home Loans & The Internet

You may think that applying online for a mortgage is... Read More

Why Choose a Home Owner Loan?

Most people choose a home owner loan as it can... Read More

Option One Mortgage Loans ? Getting an Option ARM or Option One Mortgage Loan

Have you heard about or been interested in finding out... Read More

What Are Mortgage Brokers And Why To Use One

"Mortgage" is formed from two words: the French word "mort"... Read More

Thought You Can Go All Alone In Mortgages! Mortgage Advice Beneficial In All Important Decisions

Mortgages are easy as long as you understand them well.... Read More

Home Mortgages: Does a No-closing-cost Loan Make Sense for You?

I have heard a number of radio ads and have... Read More

Buying a New Home ? Home Buying Tips

If you in the process of looking for your first... Read More

Reverse Mortgages ? a Reversal of the Mortgage Process

Mortgages have assumed a number of characters from the time... Read More

6 Helpful Mortgage Tips

Here are some mortgage tips that can help you obtain... Read More

Refinance Benefits - Refinancing Could Save You Money

The most common reason most people refinance is to save... Read More

Home Mortgage Loan Information - Which Type of Home Loan is Best For You?

If you are considering buying a home, then you may... Read More

How To Get The Best Home Equity Loan

Are you wondering how to get the best Home Equity... Read More