3 Different Techniques For Using Private Money

Alan Cowgill

Say you have some issues with your credit. You might think there is no hope to ever buy an investment property. Well I come around and tell you that it can happen when using private money or maybe your own IRA money. Either way it's like Christmas in July! Say I buy a $100,000 home and sell it for $150,000 after repairs. Using seller financing, I charge eight percent interest. I put a thirty year amortized loan on this thing.

If I buy with private money, I'll put a short term balloon on the deal so I can get the private lender paid back. But if it's my own IRA money, I don't want a balloon because I want the monthly payments to go on for 30 years. Wealth is built slowly over time. I am spending $100,000 of my IRA money and if you do the match on a thirty year amortized loan, you will see that I am making some good money.

Say my buyer is making the $1,000 payments on this $150,000 home in monthly mortgage. I get that money and often I set it up so it goes right into my IRA. Now if I go the IRA route, it will take time to get the money back on my $100,000 investment. But IRAs are retirement plans. So, by the time I retire, I have had this money pumped into my account. I can live on a beach somewhere.

This is also the type of idea that you can share with potential private lenders. This is a very cool investment. They might want to see some sort of visual aid. So be it, if you've taken them out to lunch, use the napkin and a pen. They use their IRA to purchase one of your properties. You make some quick cash and they get a long term investment.

Now there is a fear with this for the private lender. It is a healthy fear. They wonder about what happens if the homeowner stops paying. Well, that just means the property is foreclosed and you can start all over again. i.e. you make more money!

So there you have it. Three basic options to make you money.

Option 1: Buy with a private lender, and sell with owner financing with a short term balloon.

Option 2: Buy in your IRA, then sell but you are the bank and the monthly payments go to your IRA for 30 years.

Option 3: Find a private lender that wants to be a real estate investor and use their IRA to buy your property and you make a couple bucks.