This loan in Los Angeles County was a great example of the type of private money loan P2PTD arranges for our self-employed real estate investor clients who are typically very strong but they don’t fit into the narrow box of today’s conventional lending world. I’ve written quite a bit about our clients who are often self-employed real estate professionals who flip houses for their own account, own multiple rental properties, have an LLC (or ten), have a corporation or two, often have a Self-Directed IRA or Self-Directed 401K, and by virtue of this structure show a very low Adjusted Gross Income (AGI) on their personal income taxes.
Which is great from a tax planning strategy. The lower their AGI, the lower income taxes they pay.
However, it’s not great when trying to obtain conventional mortgage financing (Fannie Mae & Freddie Mac) at 4.00%-ish because the underwriting guidelines require that the individual (not their LLCs or Corporations) can afford to make the proposed mortgage payments. And they need to mathematically show that ability against their personal tax returns.
Which, for most of the self-employed real estate professionals who flip houses, own rental properties, fund and invest inside their Self-Directed retirement accounts, and write off all their professional expenses, is likely an impossible feat to accomplish.
And this is where a private money loan comes into play because the loans are mostly equity and cash flow-based rather than being credit and Debt-To-Income (DTI) driven. Private money lenders making 2-5 year loans typically want 35-40% protective equity and want to make the loan to a borrower with above average credit history.
That’s really all there is to it. Private money loans are pretty simple and can be obtained quickly as long as the borrower and the property fit the criteria of the trust deed investor.
And for the active real estate professional, sometimes going with private money financing can be the easiest way to get things done rather than applying for conventional financing.
California Private Money Rental Property Loan Terms:
- $210,000 Loan Amount
- 8.50% Interest-Only
- $1,487/mo Payment
- 36-Month Term
- 12 Month Prepayment Penalty