FAQ
WHAT DOES IT MEAN IF I AGREE TO BE A PML?
Our goal is to purchase our homes below market value so that we build instant equity into the home the minute we close on the deal. Once the house is under contract, but prior to when we close on the purchase, we present our private money lenders (PML’s) with an opportunity to invest. This means our PML’s will fund the purchase price, the renovation costs (or both) and/or all of our holding costs. Our PML’s also have an opportunity to earn double digit returns, unlike the returns we typically see in the bank, stock market or retirement accounts, with a protected, secured and insured asset.
HOW IS MY INVESTMENT PROTECTED, INSURED AND SECURED?
I’ll provide a promissory note summarizing the terms and conditions of your loan, I’ll obtain a builders risk insurance policy listing you as a beneficiary/losspayeeand as I mentioned earlier, I’ll also record a mortgage against the property with your name attached to itso that I can’t sell the house without your written consent.
HOW ARE YOU ABLE TO OFFER YOUR PML'S DOUBLE DIGIT RETURNS?
We make our money when we buy. That said, when we buy below market value and build instant equity in the home, when we obtain wholesale pricing from our contractors and when we work with a team of industry experts, we are able to provide our investors with higher returns. Also, depending on the deal, we are able to eliminate the realtor commissions, broker fees, loan fees, etc.
THIS IS YOUR FIRST DEAL SO I’D LIKE MORE THAN A 12% ANNUALIZED RETURN
Thank you so much for expressing an interest in investing. Even though my experience is limited, I work with a team of experts. My GC has been in business for X years, my Realtor has been working with other investor clients for X years, my Real Estate Attorney has been in business for X years and only works with real estate professionals, etc. I can understand why you are asking for a higher return but my standard process is that every PML receives the same rate of return which is a 12% annualized return.
WHY NOT GET A LOAN FROM THE BANK FOR WAY LESS INTEREST?
Banks have a very time consuming and cumbersome process. We can’t close quickly if we work with a bank. Most of the homes we buy require a quick close in order for our offer to be competitive. Also, many of the homes we purchase are non-conforming(don’t have functional plumbing, may have mold, no kitchen or bathrooms, etc.) so most banks typically won’t lend on those types of properties. Plus, banks will cap the number of loans that they’ll fund.
DO YOU POOL INVESTOR FUNDS?
No. Your funds will be attached to one property secured by a mortgage and you’ll have your own separate set of loan docs. On occasion, depending on the size of the deal, I may have multiple lenders on one deal but each lender will have their own separate set of loan docs and each lender will be assigned a separate lien position.
WHAT IS THE DURATION OF OUR LOAN AGREEMENT?
All of my contracts are set up with a 12 month termbut my goal is to pay you back ASAP. As soon as the renovated home sells, you will receive your principal plusinterest back in one lump sum atclosing. Your name and balance due will be captured on the HUD statement as a lender. Also, I will take care of filling out all of the loan docs on your behalf so that all you need to do is review and approve them. I will also cover your attorney fees if you’d like him/her toreview the loan docs. They are very straightforwardand easy to read.
WHERE DO I WIRE THE FUNDS WHEN I’M READY TO MOVE FORWARD WITH INVESTING?
I’d be more than happy to open up an escrow account with atitle company and I can draw from the account as needed. I’ll cover all of the fees associated with setting up this accountas well. Or, since I travel so much and prefer not towait until 1-2 days prior to closing, you can alsowire the funds directly to myChasebusiness checking account which will be solely dedicated to your property. I will alsoprovide you with view access to the account so you can log in and see where the funds are 24/7. Also, I will begin to accrue the interest as soon as the wire is processed so that we don’t have to wait until 1-2 days prior to closing. This is my preferred method but I’ll follow your lead here.
WHAT IF YOUR RESALE VALUE DROPS BEFORE YOU SELL THE HOME?
Most of our projects are completed in 6-9 months. If you look at historical market trends, you’ll see that massive dips in the real estate market won’t usually happen in a matter of months. Sure, there is always an element of risk associated with every investment made but all decisions made are data driven which significantly reduces our risk and then again, we always protect, secure and insure our investors funds.
DO YOU GUARANTEE YOUR ROI?
I can’t guarantee anything. Worst case scenario, you have to be ok never seeing this money again. HOWEVER, the probability of that happening is low for the reasons we’ve already discussed in all of the credibility pieces. Remember that we buy our homes below market value, our strict buying criteria is based upon historicaldata, we work with a team of experts who have been in business for X years and we focus on strategic markets where demand is high and inventory is low. All that said, on the rare occasion that the deal does go south, all of the projected profits are gone and I’m no longer able to cover your investment out of pocket, then you have a legalright to foreclose on me since I will be recording a mortgage against the property with your name on it. But most of the times when deals “go south,” we simply don’t make as much profit as we forecasted.
WHAT IF YOUR HOME SELLS SOONER THAN EXPECTED?
If you’d like to keep your money working for you, then we can roll your principal and interest earned into a new project and create a new set of loan docs. Many of my lenders do this. Otherwise, I’ll pay your principal and interest back as soon as the home sells as a part of the closing process.
ARE THERE ANY UPFRONT FEES?
Nope! We pay for all closing costs, escrow fees, attorney fees and wire fees.
HOW DO I KNOW THIS ISN’T A SCAM?
The proof is in the paperwork I used to protect, secure and insure each of my private money lender's investments. All of the contracts have been reviewed by my attorney (your attorney can review them as well and I will cover that cost) and the recorded mortgage which secures your lien position will be signed and notarized by the County Clerk and Time & Date stamped at the time of filing. Also, as I continue to educate you on our strict due diligence process which includes 12 different credibility pieces, your confidence in investing with me will continue to go up.
DO YOU PERSONALLY GUARANTEE THE INVESTMENT?
Like all investments, there is always an element of risk associated in the transaction and there are no guarantees. However, my job is to minimize that risk. When we borrow money from the bank, they ask us to sign a personal guarantee, but they only offer us a 3.5% ROI and a 10 to 30 year term, fully amortized. I would be more than happy to guarantee the note if you prefer the personal guarantee with a 3.5% interest rate as opposed to 12%.
WHAT IF AN UNEXPECTED LIFE ALTERING EVENT HAPPENS AND YOU’RE NO LONGER ABLE TO CARRY OUT THE TERMS OF OUR AGREEMENT?
My estate will continue to manage your investment as agreed to in the loan docs provided.
DO I PAY TAXES ON THE INTEREST INCOME EARNED?
Every year, my team will provide you with a 1099 form for you to share with your CPA or tax consultant. The statement will show how much interest you have earned for the year. It will be categorized as “Interest Income” and you’ll need to pay tax on it unless you are getting paid on money you loaned from your “Self-Directed Retirement” account.
ALL OF MY MONEY IS STUCK IN MY RETIREMENT ACCOUNT? HOW CAN I ACCESS THOSE FUNDS TO INVEST WITH YOU?
No problem! I can have my passive custodian hop a call with the both of us and explain the process to you directly. He set up all of my retirement accounts and he helps me manage them so he can help you understand which retirement accounts you can leverage from in order to invest in real estate and he can also help you with next steps if you decide to move forward.
HOW MUCH MONEY DO I NEED TO GET STARTED?
My minimum investment amount is $25,000. If you are in a position to invest more than $25,000, then please let me know so that I follow up with you when I come across my next property that matches your investment amount.
WHAT IF YOUR BUYER DOESN’T CLOSE ON THE PROPERTY AND YOU GET STUCK WITH AN ASSET THAT'S COSTING YOU MORE MONEY THAN EXPECTED TO MAINTAIN?
You'll get paid whether I do or not. My job is to make this a passive investment for you. If the house doesn't sell "on time" then once the right buyer comes along, I'll end up making a smaller profit. This is something we also discussed when I walked you through my property analysis template. If you look at the projected profit, you'll see how much that will drop month over month as the house sits on the market. At the end of the day, my job is to ensure you still get paid. Even if I don't profit on the deal, my goal is to cover the loss out of pocket.
HAVE YOU EVER LOST MONEY ON A DEAL?
Yes. However, when that happens, I do whatever I can to cover the loss out of pocket so that my private money lender isn't even aware of it and they are paid back in full. Even if it's coming out of my personal assets. However, all that said, there are still no guarantees but the probability of me taking a loss is not likely based upon my buying criteria and the various credibility pieces I've already shared with you.
YOU SEEM WEALTHY ENOUGH, WHY DO YOU NEED MY MONEY AND WHY AREN’T YOU PUTTING YOUR OWN MONEY INTO YOUR DEALS?
I am still limited to the number of homes and types of properties that I can buy with my own money. But with private money, I can buy an infinite amount of properties and grow and scale my business much faster.