Private Lending--How It Is Changing My Life AND It Can Yours Too

[John Thedford]

So, I get a PM from a mortgage broker in another state asking about private lending. I told him to feel free to ask any questions and he sent me enough to write a book LOL!

Anyways, I want to offer my personal experiences...the good, the bad, and ONE PRETTY DAMN UGLY playing out now...

I started in 2012. I knew NOTHING. My very first customer owned a nice house in Cape Coral. He wanted a ridiculously small amount of money. Today, I would not give that any thought, but being new I said OK. So, his house is worth maybe 80K or so, is free and clear, and he wants around $5700. I wrote the loan. Now, I am getting checks for $61 or so and saying WHOOPEE...I am making money! A few months into the loan, he decided to sell the house and called me first because he owed me money. I wrote a contract and purchased it. 

I believe my second loan was for around 100K. I charged 12% plus 2 points. It paid off quickly, so the annual return was pretty high but I believe I only made about 3K or so.

I did another one for 20% of value. The property was worth 70K and I loaned 14K. VERY safe loan except the FEDS SEIZED it because the idiots were selling meth. They agreed to a sale and I was made whole. I have posted quite some time ago about this exciting experience:)

Most of thesc happened in 2012 or 2013. As time has progressed, I have learned quite a bit about being CAREFUL underwriting loans. No matter how "safe" they are, some will go bad. 

I wrote ONE...tossed ALL caution to the wind (I had done business with this man), and now he has defaulted. This may be my first loser! Fortunately, I only loaned 50something K...and if I end up losing, it won't bury me!

One of the most frequent questions I get is: how much do I need to have to start doing lending?
I won't write anything under 50K, and prefer 100K or more. You can make some VERY HIGH returns if the loans pay off early. I just had one pay off: 100K, 12%, 4 points (rolled into the note at closing), one year, interest only. It paid off in two months which raised the annual return to about 36%. That is a LOT better return that I get owning rentals...and there were NO broken toilets or trouble tenants. 

If you want to start lending:
1. find out your requirements in your state
2. ONLY take 1st lien position
3. make sure you don't lend too much (or you will end up like me...and my first PROBABLE loser loan)
4. make your buyer have skin in the game. No skin=no loan
5. make sure your borrower is/has:
 a. capacity to repay
 b. good collateral
 c. good character

You CAN make some great money doing private or hard money lending. What is the difference? Private lending...you know the borrower, etc. HML..you don't know the borrower. As far as terms, either loan can have very high or low interest terms.

I use my SOLO 401K for lending purposes and am deferring all taxes until I start withdrawing. Lending has NO tax benefits like owning rentals, but used together they may be a constant source of income. Get enough of that...quit your job...and start enjoying life!

[Jay Hinrichs]

JOhn we see so many folks post about wanting to buy NPN.. because they want to ake that 12 to 20% returns... and they have no clue as a one of note investor how hard it is.

when in fact IF ITS LEGAL in their state.. private lending done right will return better returns than NPN all day long with 1/10th of the effort or risk.