(This is part 3 of a 3 part series on “Becoming Your Own Bank”)
In the last two weeks, you’ve learned a little bit about how to create and manage your own financing on properties. Today, we’ll talk about how to expand past your own resources.
If you can set your system up, you can loan your money, over and over again if you like, and make things easier for a qualified borrower who can’t meet today’s overly stringent bank requirements, while earning a great return for yourself. Best of all, it’s an arm’s length transaction, and you never have to deal with the house or the landlording yourself. If all this sounds like a lot of work, consider partnering with someone who will screen the borrower and property, set up the loan, and monitor the rehab for you locally.
You can also pool your money with one or more partners. If you like what you’re doing with managing the process yourself, maybe you could bring in another person and manage the process for them, too, for a part of their profits.
Keep specific records if you’re managing the process yourself, and give people a monthly statement if you’re managing the money for them. Of course, you will also have to issue monthly statements of interest owed to your debtor. You can either use an online mortgage calculator (to calculate principal and interest payments) or just charge interest (simple interest) on the loan. Obviously, in the latter case, you’ll make more money, since the principal never goes down. With a partner or on your own, make sure you are capable of holding the loan long-term in case the market changes again and the buyers cannot get financing when the end of the loan term comes.
Keeping It Clean
You can get partners by networking or by advertising, but make sure you are aware of the restrictions on soliciting for partners. You cannot do things like advertising a specific rate of return on an investment, and you cannot solicit strangers as investors without an SEC license.
So what do you do? First, consult with an attorney to find out what you can say in your state. Then, make sure you tread carefully in your written ads; for example, saying you want a serious “real estate partner” who is able to “finance their own deals” will allow you to screen potential folks on the phone without you asking for “investors.” Not mentioning a explicit rate of return is important, too – after all, once you have them on the phone, you can explain to them that they can set their own rate, since it will be the interest rate on the mortgage you are creating, not a “rate of return on an investment.”
No matter what you decide to do, now is the time – this is an unprecedented market – don’t miss out on this amazing opportunity to cash in on it.