Real Estate 101: Private money

with the bank rep felt less like a here’s- whatwe-can-do-to-earnyour- 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