My Rules When Dealing With Private Lenders That Fund My Real Estate Deals

by Alan Cowgill

This is my business. After many years in a corporate job working for others, I left because I wanted to run my own business my way and that's exactly what I am doing. I am using my business skills to create the kind of company I want. Along with creating my own rules, procedures, and systems within my real estate business, I have rules that I follow regarding my private lenders. A couple of my rules are:

a) Make interest payment when property sells
b) One private lender per mortgage
c) I keep my word

Let me further explain what I mean on each of these...


a) Make interest payment when property sells...
I didn't start out that way. I thought everyone would expect monthly or quarterly payments, so I started paying some early lenders monthly. But after a conversation with a RE guru, I quickly changed and now pay when the property sells. What a huge benefit to cash flow and what a BIG help with the office paperwork. Not only is this a matter of less paperwork for the staff, there is another practical reason for doing this. When a lender's money is applied to a property at closing, the clock starts ticking. The interest rate starts. However, it may take a couple months to renovate the house and find a buyer or rent-to-own tenant. So the cash flow from the property will not even start for a couple months.

In addition, when you sell the house the lender gets a bigger chunk of money to lend back to you for your next project. Everybody wins.

b) One private lender per mortgage...
The #1 question I get from all over the country is "can I pool lenders money". The answer is maybe.

You cannot "pool" lender's money unless you fill out some paperwork with your state.

So, if you need more funds to purchase and rehab a property, then the 1st lender (the one with the most money) gets a 1st mortgage on the property and if you need more money to rehab the property, bring in a 2nd lender and they get a 2nd mortgage.

They are your "Bank" and they get a mortgage (lien) on your property.

You take possession of the property in a land trust and you get the deed. The lender gets a mortgage. These are the two key documents on any real estate transaction.

Actually, you can have as many mortgages (1, 2, 3, 4, etc.) as you like on a property as long as you don't over leverage the property.

c) I keep my word...
I follow my agreement with each lender exactly. I run my business with integrity. Like I said earlier, my rule now is that I make interest payments when the property sells. But there are a few early lenders with whom I made the agreement to pay monthly. I will stick to my agreement with them regardless of how long they invest with me. And, since they love those checks, they'll probably be around a long time -- and that's great as far as I'm concerned.


Alan Cowgill is a national speaker, author, and real estate entrepreneur. Alan had bought or sold over 200 investment properties. His step-by-step system "Private Lending Made Easy" teaches Real Estate investors and mortgage brokers how to find private lenders. Contact Alan at 937-390-0816 or 866-831-3540. For a FREE audio CD go to http://www.PrivateLendingMadeEasy.com
Article Source: The FREE Article Distribution Center


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Learn the Insider Secrets of Buying Bank Foreclosure Properties

Foreclosure and Home Devaluation

by James Copper

While just about everywhere in the United States the real estate market has come back robust and healthy and most people can count on their house selling after a short period on the market, there are some states whose residents are facing foreclosure in record numbers.

Ohio, Georgia, Texas and Florida are reeling from recent economic havoc created by their areas industrial demise and the subsequent concentration on the service industry with its less plentiful and poorer-paying jobs. Benefits for these service industry jobs are not nearly as good as those in the prior industrial industry, and in some cases they dont exist at all.

The mid-Atlantic states have been suffering from this loss of manufacturing jobs and firms for decades now and foreclosure and devaluation of homes has become commonplace.

Foreclosure might have been staved off in many of these situations, however, had the homeowners not been the victims of some less than reputable lending plans and firms, with ill advised financing options such as interest only loans that left these borrowers with little home equity when they needed to refinance or secure a second loan to save their home from foreclosure.

The interest only loans left them with little or no equity which meant no collateral for the loan. Their homes fell into foreclosure as a result.

An interest only mortgage loan is one in which the monthly payment is exactly the amount of the interest accrued so far on the loan and doesnt touch the principal.

This interest only feature only lasts for about the first five to ten years of that loan, and while borrowers have the right to overpay at any point their overpayment only goes to future interest payments - again, not the principal.

What this means is that for the years of the interest only option the borrower isnt paying off her or his loan. A 100,000 mortgage in 2000, with an interest only option for 10 years, will still have a balance of 100,000 in the year 2010.

Were the borrower to run into difficult making these payments and find the threat of foreclosure hanging over their head, they could be in serious risk of foreclosure. Lets assume, for example, that the houses market value in 2010 was 120,000.

Since literally none of the borrowed 100,000 had been paid off the equity in the home would be at a mere 20,000. If, however, the mortgage payment made each month to the borrower included 200 towards the principal at the end of that 10 year period the borrower would have another 24,000.

Actually the equity would be much greater because as the principal was paid down the interest on the balance would decrease and the same payment would pay more of the principal and less of the interest. This additional equity might save a home from foreclosure if the borrower were to get sick, lose a spouse, lose a job or otherwise get into financial trouble that made payments late or missed.

The general rule of thumb is that interest only loans should not be considered unless you know for a fact that your earning power five to ten months down the road will greatly increase and your outstanding bills will decrease.

Then the risk of paying a little bit now and a lot later isnt as great. You wont be risking foreclosure.


James Copper is a repossession consultant for http://www.repossession-stopper.co.uk/home_repossessions.php
Article Source: The FREE Article Distribution Center


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Learn the Insider Secrets of Buying Bank Foreclosure Properties