How Your Money is Protected
How Your Money is Earning Interest
When You Collect Your Money and Interest
- How Your Money is Protected
Two Types of Lending: 1st Lien and 2nd Liens
Both are protected via Deed of Trust and Loan Agreement that is signed along with the closing documents. In a nutshell, you are just like the mortgage company and we have documents to sign that protect your investment in the asset you’re lending on. Those are filed with the state so it shows up on the title chain, thus ensuring your money is protected via Deed of Trust.
1st lien positions range from $75,000-$300,000. Let’s use a $125,000 property for example. I purchase the property in my company name, however, there is a loan agreement and deed of trust ensuring the $125,000 invested. That Loan Agreement details out the per diem (or interest) collected depending on how long the money is lent out and returned. Most projects take on average 90-120 days, some are shorter and every now and then one goes a little longer.
2nd lien positions range from $15,000-$60,000 depending on rehab, and go to the fixing of the home. 2nd liens are partnered with first liens, and the idea is to utilize those funds to increase the value of the product, thus keeping the 1st and 2nd liens protected at a safe loan to value.
Property is being purchased at a discount so the initial loan to value is attractive for investors. Then as the property is rehabbed, it increases in value, making your loan to value go even higher. I will never and never have defaulted but in the event I did not deliver on our terms, the property including rehab would become yours as the 1st lien position (this is why banks only do lending and never buy rentals). Lastly, I keep hazard insurance on every property! So even in the event of the home burning down, your money is protected by insurance.
- How Your Money is Earning Interest
10% APR on your investment – so in this example, $125,000 lent times by .10 then divide by 365 days to get the per diem – $34.25 per day. That per diem is on average 90-120 day turnaround and the idea is to wash, rinse, & repeat – get your principal back plus your interest earned, then lend again on another deal with the same terms. My long term lenders love this and I’ve helped them make so much more money than leaving cash sitting in their bank account earning less than 1% APR. Not to mention the temptation to spend it! Lol
- When You Collect Your Money and Interest
At closing after the rehab is complete! So in our example of $125,000 lent for 120 days, the total payout at closing to the lender (Greenwood Capital in this situation lol) would be $125,000 plus the per diem of $4,110. In theory you can pocket the per diem and re-lend the money to continue earning on the same amount invested, all while keeping access to it in a relatively short term level (less than 6 months)