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
The most basic distinction between types of mortgages that are... Read More
For the first time since May 1996 reports have indicated... Read More
I decided to write this article today after closing a... Read More
What is a Fixed-To-Adjustable Rate Mortgage?This type of mortgage offers... Read More
So how have you planned the repayment? Don't tell if... Read More
Home equity loans give individuals a tool to extend their... Read More
Are you wondering if you can get approved for a... Read More
Looking for the best homeowner loans can be stressful, especially... Read More
Some people in the real estate industry have a terrible... Read More
There are numerous reasons a person has bad credit. Late... Read More
Persistence is the key working toward getting approved for a... Read More
Refinancing your home or property is a big decision that... Read More
Many people choose to take out home improvement loans so... Read More
Seldom in ones life do we get a chance to... Read More
Are you considering applying for direct homeowner loans? Perhaps you're... Read More
As is the case when applying for any mortgage, be... Read More
Here is a useful guide to the different types of... Read More
Finding home loans can be a daunting task, whether you're... Read More
Dealing with mortgage companies online can enable you to get... Read More
If you are a homebuyer, there are a few points... Read More
If you are self-employed, work on a contract basis, or... Read More
You're considering refinancing your home mortgage loan to save money.... Read More
For years, when someone wanted to purchase or refinance a... Read More
Choosing the right home equity loan can be tricky; you... Read More
Everybody wants to own a house because it is something... Read More
Obtaining a home equity loan does not have to be... Read More
If you are considering buying a home, then you may... Read More
Maybe you've heard the expert advice that your debt to... Read More
A VA guaranteed mortgage is the usually the best way... Read More
When you need a mortgage -- either because you are... Read More
Few of us invest the time and effort into researching... Read More
If you happen to be shopping around for a mortgage,... Read More
A repayment mortgage is the type of mortgage that most... Read More
The prospect of mortgage debt elimination is something that many... Read More
You may have heard people, especially mortgage lenders, extolling the... Read More
Loans are not of a recent origin. People used to... Read More
If you are in the market for a home equity... Read More
With the low interest rates being offered by lenders today,... Read More
Online homeowner loans have been growing in popularity in recent... Read More
Have you ever noticed how hard it can be to... Read More
Buying and financing a home today can be overwhelming. Here... Read More
Uncle Sam has a gift for the men and women... Read More
Mortgages are easy as long as you understand them well.... Read More
A tracker mortgage 'tracks' the Bank of England base rate,... Read More
When you're looking for a home loan, you might work... Read More
A Home equity line of credit is a loan which... Read More
When you begin your search for a new home loan,... Read More
Refinancing has become a valid option for many individuals with... Read More
Mortgage elimination programs are all the rage these days. In... Read More
There are many benefits to interest-only mortgage loans. There are... Read More
I have a lot of friends and family who are... Read More
You've finally found that dream home that you have always... Read More
Mortgage underwriters can be a suspicious bunch. If you have... Read More
How does an ARM work.The borrowers interest rate is determined... Read More
Applying for a home loan may not be the most... Read More
A home equity loan can help repair your poor credit... Read More
The bills are out of control and you need a... Read More
To make needed repairs to your home without the advantage... Read More
Many people choose to take out home improvement loans so... Read More
Do you have bad credit that you worry will stop... Read More
Finding the best mortgage lender online is simply a matter... Read More
If you're looking for a good home improvement loan rate,... Read More
Few of us invest the time and effort into researching... Read More
Procuration fees paid by some sub-prime lenders are too high.Fact.There... Read More
When the time comes to do work around the house,... Read More
How do you know if a reverse mortgage is right... Read More
Mortgage Refinance |