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Private Lending Program
Created by ALL Realty Solution Trust
Created by ALL Realty Solution Trust
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Private Lender Q & A
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What is private lending?
Q:) What does it mean to become one of your private lenders?
A:) When we have a want to borrow money against the equity in a property we own or a property
we’re buying, we give our private lenders an opportunity to make us the loan… and earn high
interest rates that are double or triple the rates you would get on bank CDs.
How is the money used?
Q:) How will you be using my money?
A:) As professional real estate investors we need to fund new purchases, raise money to fix up,
maintain and occupy our properties… plus cover the other costs associated with buying and selling
Real Estate.
For properties we already own and manage, there are times when we want to convert some of our
equity into cash -- without selling the property. This cash may be used to fund our Real Estate
buying business, pay off other real estate notes that come due and handle unexpected cash needs.
Why?
Q:) Why don’t you go to banks or mortgage lenders?
A:) Banks and other lenders require applications, approvals and must follow guidelines imposed on
the banking industry. Then there are limits to the number of loans they want to make to any one
company or investor. On top of that, the time it takes for their approval process is never certain.
We can move much faster without these limitations by using private lenders. That allows us to
negotiate more profitable deals while offering property owners a quick and easy sale without new
loan or deal breaking contingencies.
Q:) How can you afford to pay double or triple CD rates?
A:) We make our money by providing valuable services to the sellers, buyers, renters and private
lenders we work with.
By cutting out the middlemen, we can avoid the costs normally paid out for real estate commissions,
mortgage broker fees, loan fees and property management fees.
When we sell a single family house, we know how to get full appraised value from our buyers and
avoid making price concessions. We can occupy houses fast to avoid holding costs and we know how
to fix up and maintain properties for less money then most people must pay.
We always formulate our purchase offers so that our buyers and sellers get a great deal. At the same
time we establish a minimum profit of $20,000 or $30,000 (more on commercial property) earned
or captured between the time we purchase an investment property and sell it down the road. We just
won’t buy a property unless it makes sense for everyone involved.
Help for sellers, buyers and renters
Q:) How do you help sellers?
A:) A lot of sellers today are having trouble finding a buyer when they decide to sell. And there are
typically a lot of hassles a seller must endure to get their property sold. Using a long-term investing
approach, we can offer sellers an attractive price, close or take possession whenever they want… and
give them an opportunity to avoid all the hassles of selling a property.
Q:) How do you help buyers?
A:) We offer several great programs and unique opportunities for buyers. This includes our owner
financing program, our down payment assistance program and our sweat equity program. Buyers
today are finding it more and more difficult to qualify for loans. Our programs help buyers get into a
home they want to purchase quickly… allow them to start building equity for the future and help
them avoid throwing their money away on rent.
Q:) How do you help renters?
A:) Tenants today face more restrictive rules and application requirements laid down by landlords
and property management companies. We have positioned ourselves to be very flexible and creative
in getting nice folks into our homes, thereby providing a much needed service. We can even rent to
folks who recently had a bankruptcy or foreclosure.
Market conditions
Q:) Aren’t you concerned about housing prices going down today?
A:) We’re prepared to hold the properties we buy for 5, 10 even 15 years. That way, we’re not as
concerned about near term price fluctuations in Real Estate prices as other investors are. Most of our
investing plans are determined by the income we expect the property to produce now and in the
future. If we think a property may go down in value, then we make any adjustments needed
upfront… before making an offer to buy.
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Rate and term
Q:) What interest rate do you pay your private lenders?
A:) We currently pay between 2 and 3 times rates offered on 5 year, FDIC insured CDs. As of June
2009, the national average for a 5 year CD is about 3%. We currently offer our lenders 8% to 10%
interest on notes secured by real estate. You can research nationwide CD rates by visiting
www.bankrate.com and selecting the “CDs & Investments” tab. You’ll always know exactly what
interest rate you will be locking in with us prior to making any investment.
Q:) What determines whether you pay me 8% or 10% interest?
A:) We currently pay 8% on a mortgage in first lien position and 10% on a second or junior lien
position.
Q:) How long will my investment funds be tied up?
A:) Most of our private loans are setup on a 5 year term. However it depends on what you want
and need… and what we want and need. So depending on our plans for the property, we might be
able to offer you a 3 year term… or we may ask if you’re willing to commit to a 7 or 10 year plan… if
that’s our preference. Regardless, you’ll always decide what term works for you on any note you
invest in.
Q:) What if I don’t want to go longer than 3 years?
A:) Then we’d have to wait for a special opportunity where that would work for both of us.
Q:) What if I commit to 10 years and then need my money sooner?
A:) Real estate notes are illiquid investments. However, our policy is to pay off (or replace) any
private lender who requests an early payoff whenever we can. Sometimes a partial early payoff
meets the lenders needs, allowing the rest of their money to continue to earn the high rates. We ask
that you give us advance notice, preferable 60-90 days, so we can do whatever we can to meet your
request. We would attempt to meet such a request by refinancing the property, selling the property
or, most likely, finding another one of our private lenders who’d like to take over your position.
Q:) Do you guarantee my interest for 10 years if I get into a 10 year note?
A:) Your interest is fixed and locked for as long as the note is out. However we may sell or refinance
the property before the full term is up. You’ll always earn your note interest until it’s paid in full. But
we do have the right to pay you off early.
Q:) What if you pay me off only a month after I invest with you?
A:) We understand that you might be liquidating investments or foregoing another investment
program to get our high rates of returns. Therefore we agree in writing, spelled out in your note,
that you’ll receive minimum of 6 months interest. So if we needed to pay you off sooner than
expected, we would either give you the opportunity to move your mortgage to another property, or
pay you off in full including a minimum of 6 months of interest earned.
Q:) Will I receive monthly payments?
A:) In most cases you can receive monthly payments of principal and interest, or interest only.
Interest only payments keep your entire initial investment working for you each month.
Q:) Can my interest accrue and grow if I don’t want payments?
A:) In many cases yes, but it depends on the deal. Sometimes we prefer to make monthly interest
payments to maintain a protective cushion of equity in the property over time. However, on smaller
second mortgages, we may prefer to let the interest accrue if that works for you. That way we can
simplify our bookkeeping and at times avoid a negative cash flow.
Q:) If I want my interest to build up without getting payments, will you pay me a compounded rate
of return?
A:) Yes! If your main goal is growth then there’s nothing like compounded interest. The amount of
interest you earn grows larger each month as the outstanding balance on your original investment
grows each month. This can be quite attractive when it compounded for many years.
Minimum
Q:) What is your minimum investment?
A:) We prefer to borrow at least $10,000 when working with our private lenders. If a deal needs
less than that then it may be easier for us to just use our cash reserves.
Guarantee
Q:) Is your investment program insured by the government?
A:) No. There is no government backed guarantee on these privately held real estate notes. Your
main protection and security is the amount of equity in the property that secures the note. With
enough equity a lender can use a legal or voluntary process of taking ownership of the collateral and
then (if desired) sell the property to recapture the money invested plus any costs incurred in doing
so.
Approved
Q:) Has the IRS approved your program for retirement accounts?
A:) The IRS does not approve or endorse investment programs but they do establish guidelines
that must be followed in order for you to invest in real estate notes tax deferred or tax free. You may
need the services of a custodian to invest retirement funds tax deferred or tax free. We have been
pleased working with Equity Trust Company in Ohio (www.trustetc.com) and there are others like
Entrust. We’ll be glad to answer questions about this or help get you setup right.
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Loan to value
Q:) How do I know if there’s enough value or equity in the property to sufficiently protect my
investment?
A:) It’s our policy not to borrow more than 75% of the value of a property using private lender
money. That leaves at least a 25% cushion of equity. We will provide you with full details on the
value, status and condition of the property whenever we present you with an opportunity to lend to
us.
Cost and insurance
Q:) Do you provide title insurance?
A:) You can always buy title insurance if you want. We will buy you a lender’s title policy if you get
involved in funding one of our new purchases. However, if we are refinancing a property we already
own then we don’t usually offer title insurance.
Q:) What are the upfront costs involved in investing with you?
A:) It is our policy to pay for all the closing costs so that your entire investment goes to work for
you. We will pay for the closing agent, doc prep fees, notary fees, overnight mail fees, bank wire fees
and recording costs. We do not charge any fees or commissions to our private lenders.
Q:) What happens if the property burned down?
A:) We’ll always keep a valid hazard insurance policy on the property to protect against causalities.
You’ll be named as a mortgagee and notified if the insurance was ever not kept in full force.
Insurance distributions would be used to rebuild or repair the property, or used to pay you off.
Loan positions
Q:) Will my money be pooled with other investors?
A:) No. We do not pool funds. Your funds will fully fund one real estate note secured by a deed of
trust on a property with sufficient equity as protection.
Q:) What is a junior lien?
A:) It’s a loan secured by real estate that is positioned behind a senior mortgage. In the case of a
default, a lender can seize the property through a simple deed transfer or through the legal
foreclosure process. Junior lien holders need to payoff or protect any senior lien holders in order to
protect their position.
Q:) How do you protect a senior lien?
A:) You can either pay them off in full or bring their loan current (making up any back payments if
needed) and then making any other payments that come due. This helps to stop or prevent a senior
lender from foreclosing, allowing the junior lender to foreclosure from their position.
Q:) What happens if I don’t protect a senior lien holder?
A:) If the senior lien holder forecloses, then junior lien holders could lose their secured position on
the property, putting their entire investment at risk. This added exposure to a junior lender is why
we offer a higher interest rate. Many lenders are fine being in junior positions because they get
higher interest, are protected by the equity cushion and typically have enough faith in the borrower
to take such risks.
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Common concerns
Q:) If you default and don’t keep all your promises, how do I get the property?
A:) We can’t make any guarantees but if we were in a position were we could not keep our
agreements, we’d simply transfer ownership of the property to you if possible. If we did not (or
could not) then you have all the legal rights of a secured lender. The best way to legally protect your
interest in case of a default would be to hire an attorney. They normally would seek to get your
investment back, any unpaid interest, any collection costs, all your attorney fees and maybe even
more. A legal representative could advise you if it makes sense to foreclose or seek ownership of the
property to protect or recoup your investment.
Q:) If you rent the property out, what happens if your tenants trash it?
A:) We’re the property owners and it’s our responsibility to protect our property as well as to protect
your collateral. We’d fix it or take care of it and you should never have to get involved in such an
incidence. It would only affect you if we were in default and you repossessed the property to protect
your interests.
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Next step
Q:) What happens next if I want to get started?
A:) If you are interested in becoming a private lender, please fill out this form. Once we know how
much you want to begin getting a higher rate of return on, and when those funds are available, we
will begin looking for a deal for you. When we select one that meets your goals and investment
needs, we’ll give you all the details and then you can decide to pass or play.
Q:) Can you work with people I know who might be interested in your program?
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A:) It is our policy only to work with people that we have an existing relationship with, like
yourself. You can certainly refer potential lenders to us and we will be happy to explain the program
and begin to learn more about their investment needs and goals. Once we get to know them more,
then there is a good chance they can also become one of our private lenders.
General Disclaimer
The information in this document is being provided for illustrative purposes. It is suggested that you seek professional legal advice as certain federal and
state rules, regulations and laws may apply.
This is not an offer to sell or solicitation of an offer to purchase an investment or security. This information relates to possible real estate opportunities for
qualified purchasers who have established an existing substantive relation with natural persons qualifying as investors by virtue of such pre-existing
relationships and by proof of business experience, income and net worth.
This program is designed to provide information in regard to the subject matter covered. While all attempts have been made to verify information
provided, the authors do not assume any responsibility for errors, omissions or contrary interpretation of the subject matter. The information in this
program is not intended to be legal advice, nor a substitute for obtaining legal advice from competent, independent legal counsel. It also is not designed or
intended to be relied upon as authoritative financial, investment or professional advice.
The authors are NOT engaged in rendering legal, accounting, or other professional services. If legal or expert assistance is required, the services of a
competent professional should be sought. The author wants to stress that information contained herein may be subject to varying state and/or local laws or
regulations. All users are advised to retain competent counsel to determine what state and/or local laws or regulations may apply to the user’s particular
business.
Neither ALL Realty Solution Trust, ALLRealtySolutions.com, nor the authors warrant the accuracy, reliability or timeliness of any information covered in
this program and shall not be held liable for any losses caused by reliance on the accuracy, reliability or timeliness of such information. The user of this
program assumes responsibility for the use of these materials and information. Adherence to all applicable laws and regulations, both federal and state and
local, governing professional licensing, business practices, advertising and all other aspects of doing business in the United States or any other jurisdiction is
the sole responsibility of the user. The authors assume no responsibility or liability whatsoever on the behalf of any user of this program.
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