Private Lending for Real Estate Answers That Will Make You Smile
Welcome to our Q & A Page
What is a private lender?
Private lending for real estate, is when an individual lends money from either their 401(k), an IRA account or any investment funds they might have for the purpose of funding real estate transactions, and as a result, receives some type of return, which could be a fixed or variable return or even some equity participation in the actual real estate property. To learn more watch this video.
Why would I want to do private lending for real estate?
First of all, if you’re considering real estate as your vehicle of choice, follow these links to get more details on a few of the advantages it offers; leverage, tax advantages , asset protection and velocity of money. By using private lending for real estate you can have all those benefits, obtain a great return, and have somebody else do the majority of the work on the investment for you.
Can anyone invest with your company?
Simple Acquisitions partners with accredited investors. The SEC’s definition of an accredited investor is an individual who earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
In order to participate in the private lending for real estate program, you will be required to provide validation of your accredited investor status.
If I invest with you, who will handle my money?
This is a very good question and something very important to keep in mind, first we NEVER touch your money. All funds are forwarded to the closing attorney, where they are protected by the lawyer’s trust account. This is an important aspect when using your funds in private lending for real estate because if the closing agent does not get the money you will not be registered on title.
What paperwork would I receive?
Prior to the acquisition you will receive a Private Placement Memorandum which provides you with details of who we are, what we do, what risks are involved in this endeavor, as well as the details of the specific property IF we have one under contract. You will also receive an Operating Agreement and Subscription Agreement that defines all participants’ roles in this transaction and how your funds will be returned to you. At closing, the attorney will register a mortgage on the property securing your funds. You’ll also receive a title insurance policy as well as a hazard insurance policy to protect your investment. Once the property is acquired you will receive quarterly updates on the property, making private lending for real estate one of the most sought after types of investments available.
How would my investment be protected?
Here at Simple Acquisitions we believe that the private lending for real estate formula is to acquire assets that grow in equity in order to have all investors initial investment returned to them within a 3 – 5 year time frame. Once that is accomplished, you are still a partner in that asset, but your funds are now freed up for you to do invest somewhere else.
Now while your funds are still in the project you will have a promissory note and mortgage registered against the property. And if certain performance objectives that are set out in the operating agreement are not met, operational control of the asset can be had with relative ease. The property itself will have title insurance as well as adequate hazard insurance to protect it.
What happens if something goes wrong after I have invested with you?
If something bad should happen with the property it would be protected with insurance that would be put in place. For your funds used for private lending for real estate, since there are property managers in place, the likelihood of there being any visible disruption is highly unlikely. But, if anything should happen to us, you, your company or your IRA are listed on title. This makes it easy for partners to elect new managers and continue the day-to-day operations of the property or sell it if that is what is desired. Check out this video for more information about our private lending program. CLICK HERE FOR VIDEO
I’ve never done private lending for real estate before. Does it involve a lot of work?
We try make the process as simple for you as possible. After all, it’s what we named our company! Like with any investment you will want to perform your own due diligence. Once you decide to be a lender partner with us, you will sign some paperwork, forward your money to the closing attorney and wait for your quarterly payments and updates. That’s it! We take care of everything else.
What are the steps involved in being a private lender?
1. The lender is provided with the details of the property
and given a Private Placement Memorandum, Operating Agreement and Subscription Agreement.
2. The lender provides Simple Acquisition with accredited investor verification.
3. The terms are negotiated and the lender is provided a promissory note.
4. The official note and mortgage document are created with the Title Company or Attorney.
5. The lender is sent the wiring instructions for the Attorney’s office (Escrow/Trust Account).
6. The property closes and the lender is given the lien security + lender’s name is added to the insurance policy.
7. The lender is provided payment based on the agreed schedule and terms.
8. The lender is provided regular updates on the property.
9. When the property is sold or refinanced as per the exit strategy, the lender is paid back their initial capital and share in the profits when the property is sold.
10. The lender is provided the opportunity to participate in future deals and continue to earn passive income.
Can I use my IRA or 401(k) to do private lending for real estate ?
Absolutely! We can work with you and a Third Party Custodian to move your funds into a self-directed account if required. (See the Retirement Accounts page on this website for more information on using your IRA or 401(k) to invest in real estate.)
How long will my money be tied up in your investments?
The answer is; it depends. If you recall in the “How would my investment be protected” section we explain our private lending for real estate approach on how we see funds should be treated. It will depend on the type of real estate transaction. As you probably already know passive income is the best type of income so that’s where we focus our attention. But. if a good flip comes along we won’t turn it down.
If I decide to invest in real estate with you; what will my money be used for?
It will first be used to acquire the property. Then depending on what the intent is for this property the funds can be used to rectify some deferred maintenance or perform improvements. This is done to increase the equity in the property to be able to re-finance and get everybody back their initial funds. These types of decisions are always determined ahead of time when we’re purchasing a property.
How are you able to provide a higher return that my current investments?
With the current state of the economy many properties have lost 30-50% of their value, and rents have either stayed consistent or in many case increased, so there are still many good value plays available.
We have also build many relationships with companies who control large blocks of properties and they are willing to discount the non-performing ones quite handsomely. And although there are many people who do private lending for real estate, the bulk of them use single family homes as their target, therefore not many people who are looking to purchase properties of this size so there is not much competition. The availability of cash is also a key to being able to take down great properties, and once we acquire a property we already know what we’re going to do to make it perform better and we raise the funds with that in mind and tackle doing those changes as soon as we take possession.
Will I be penalized if I need to pull out my money sooner than the committed time frame?
Simple Acquisitions understand that circumstances arise and you may need to pull your money from an investment. We encourage all lenders to give thought to whether or not they will require access to the funds before the end of the term before deciding to invest. However, if unforeseen events require you to back exit your money, we will not penalize you for it. We do request you provide at least 60 days notice. Then as soon as we can find a replacement for the lost capital; you will be able to remove your investment without penalty.
What is the minimum investment amount?
Our private lending for real estate program targets mid-sized multi residential properties, therefore the minimum investment amount is $50,000 USD, sometimes unique buying opportunities, coma up and depending on the acquisition, the minimums may be less if, for example, the property is a single family residence as opposed to a multi-family complex. Those are all determined on a case by case basis.
Will I receive monthly payments and interest?
Our buy and hold projects pay our partners on a quarterly basis, and with our private lending for real estate program you share in all the profits that are generated from the complex in which you invested. We strive to have the payments you receive be in line with the projections outlined in the underwriting template and private placement memorandum documents when we target a specific property.
It is important to note however that in the early stages of some projects, specifically the non-performing ones we target, that it takes some time to get it to perform, as a result, initially there may not be any disbursements. The projections for each acquisition is completely spelled out in our promotional documentation.
Do you guarantee my return?
Our private lending for real estate programs are registered under an exemption with the Securities and Exchange Commission (SEC) and as such we do not guarantee a return. With investments comes risk, and as much as we do what we can to mitigate those risks, unforeseen events and things out of our control can happen. Simple Acquisitions does its best efforts to provide the projected rate of return. We do our research and ensure we allow for any unforeseen circumstances.
What happens if the property burns down or is destroyed from natural events?
Simple Acquisitions purchases hazard insurance for all properties. You as a lender partner will be named on the insurance policy. Insurance distributions would be used to repair the property or used to pay you.
Will my money be pooled?
If we purchase multi-family complexes, then yes your money will be pooled in a private lending for real estate program. We are registered under an exemption with the Securities and Exchange Commission (SEC) which allows us to pool funds. Pooling is a common activity and not one to be feared. Larger blocks of funds allow us to buy those amazing multi-family properties that provides economy of scale when it comes to almost anything involved in this asset class. This then provides us all with great cash flow.
What is the economy goes south or the property is not performing as expected?
Partnering with private lenders to acquire real estate is our business. Therefore we take great care in researching every property and only buy in markets that have, and will continue to have, good demand for housing. We also factor in sufficient contingencies (such as vacancy and expenses) to account for those unforeseen events. We make every effort to create a desirable living environment that will continually attract the right type of tenants long term. We also monitor markets closely so we know the most opportune time to buy and make sure we are not overpaying for an investment. Even when unforeseen downturns occur, although the value of the property may be reduced, the cash flow from the rents more often than not is not affected as severely, so we’d still be in a good position. Those downturns in the economy can often boost rental demands and affect our property in a positive way not It also makes it a good time to purchase other properties where the owner was not as organized and profitable.
If something happens to your company what happens to my investment?
When you invest with Simple Acquisitions we create a corporate entity which is used to purchase the property. You, as a lender partner, will be named in that entity. Therefore if anything happens to us, you and the other members of the corporation would simply elect new managers and either continue to operate the complex or sell it.
How do I get more information?Contact us