Friday, August 10, 2012

Why Be a Private Lender?

Today I lined up a private lender for the SFR investment property I am buying in Ballard, one of Seattle's hottest real estate markets. The seller is financing 91% of the purchase price for five years at five percent simple interest. My private lender is putting up the remaining amount needed to close the transaction and make a few improvements to the property.

Why is the private lender in second position willing to do this?

One reason is because he is earning 7% on his investment, more than he can earn in the stock market, in the bank, or in any other investment that he knows.

He is using his Individual Retirement Account (IRA) to make this investment. His IRA funds are in a self-directed account that he set up, so that he could direct his own investments. He has checkbook control, and makes his own decisions about the best places to invest his money. He is a real estate investor and happens to like investing in real estate, more than stocks and bonds.

Many people are not aware that it is possible to self-direct your retirement funds, and that real estate is an eligible investment. I would be happy to refer people to the good folks at Equity Trust Company or at Guidant Financial to learn more about how to do this. Just contact me at and I can send you their information.

This private lender wants a return on his money that will not eat into the principal in his investment account. More passive investors may just let their financial advisors invest their retirement funds, proclaiming that the loss of their principal is just a natural part of investing in securities. What rate of return do these advisors offer? Chances are they won't be willing to state a rate of return, because they have NO CONTROL over their product.

This private lender does not want to lose his hard-earned funds to the vicissitudes of the stock market. His investment with me is secured by both a promissory note and a deed of trust on the property. He has tangible collateral securing his investment.

This private lender is also investing with someone he knows and trusts. He knows that I am an active investor and has met me at the local real estate investment meetings. I have credibility because I am an active volunteer in the real estate investment community. In addition, I have shared with him my credit ratings, so he knows that I am a good risk and a responsible borrower.

Local rents on this property will more than cover the costs of the borrowed funds. So I am able to pay both private lenders, while making enough of a profit to stay in business.

My private lender is also lending money because he wants to learn more about real estate investing. He has decided to lend money to me because he wants to learn more about my investing strategies. And he will.

For a free special report on Private Lending, contact me at and happy lending!

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