Think of yourself as a wholesale lender. What rate of return would you be comfortable with on a single family residence, a parcel of land, or a multi-family development. Would you allow a borrower's credit score influence your rate of return or would a steady rate across all property types and borrowers be the best for your situation? When investing as a private money investor, you can set the terms. Are there exceptions where Federal laws regulate terms and rates, sure. However, more often than not, an individual investor can require rates and terms.

What type of Federal laws regulate term and rate? If the loan is an owner occupied refinance or equity loan, a rule of thumb is a minimum five year term. If the borrower does not live in the property, the term can be anywhere from six months to 10 years or more.

As an average, our private money investments yield 14-16% annual interest, with interest only payments and a balloon payment at the end of three years. If a borrower has decent credit and low loan to value, a typical interest rate can be from 12-14%. A development project where the borrowing entity is a Corporation or Company and the risk is somewhat higher can yield rates of 16-20%. The point being, these type of loans are not dependent upon the prime interest rate set by the Federal Government. As a matter of fact, our business of placing private money loans increases as the Feds increase interest rates and make conventional loans harder to receive.

A commonly asked question is the worst case scenario. A worst case scenario is a borrower stops paying and the investor is forced to foreclose on the secured property. Normally an investor will wait 30-60 days before beginning foreclosure to allow late letters to be received by the borrower and give the borrower time to make payment arrangements before the added cost of Trustee's Sale fees are added to their already mounting balance due. While the fees are mounting, the private money investor is well secured since the loan amount is at or less than 70% of the value of the property. If the foreclosure proceeds and the investor takes the property back, the principal balance, accrued interest and all fees are added together to give the amount necessary to receive a full return. The investor has now become a property owner.