I’ve talked about why being a private money lender (PML) is good for you, about how you can make more money loaning your money to us in a month than you can by leaving it in the bank for a year. But when somebody ask me why I’m willing to pay such high interest rates, I realized I had never explained why borrowing from PMLs is good for us at Hermit Haus.
We usually pay 10 to 12% on the money we borrow from private lenders. Unfortunately, not every deal will support that. When the deal doesn’t support it, we only have two options. We can either walk away from the deal or find a cheaper money. And be honest. Wouldn’t you rather earn 7% on your money then .005%?
But I digress. I’m supposed to be talking about why we pay so much and are happy about it. Most of the reasons have to do with banking regulations. The others are practical or philosophical.
- Banks are slow.
These days it takes a minimum of 45 days to get a bank loan process. We don’t have the luxury of that much time. When we’re helping somebody avoid foreclosure, we sometimes have less than a week. Having a relationship with private money lenders is the only way we can get money that fast.
- Most banks won’t lend on fixer uppers.
Even when we have the time to process a bank loan, banks are very reluctant to loan against future value. They look at a house in its current condition, And say “it’s not livable. We can’t loan on it.” So we have to find the money somewhere else. If we decide to hold a property, we can always refinance with a bank loan once the renovation is complete.
Private money enables us to do more deals.
We do use our own money and bank money, but using private money doesn’t tie up our banking resources. Having a reserve of private money we can call on enables us to write more offers and do more deals than we could do just using our own money. It lets us help more people and make more money. We’ve even had people come to us with the money and the deal who wanted to work with us to learn our systems.
- Leveraging other people’s money helps us increase the return on our own cash invested.
Each additional deal we do using other people’s money increases our bottom line. We have the same amount of our own money invested. Those additional profits increase the return on our own investment.
- We like to share the wealth.
The win-win scenario is one of our core values. Bringing other people in adds yet another winner.
So, there you have it. Putting your money to work enables us to help more people, including you and us.
If you would like more information on being a private money lender, this button will send you a free booklet that provides many more details.