Your loan has three pillars of security. The deed of trust to the property: essentially, you are the bank and you can take over the title or foreclose if we fail to make payments. You will be added to the insurance policy as a 'loss payee': this ensures that if our house were to suffer significant damage due to a storm, your loan is protected. You will also receive a promissory note: this is a legally-binding "promise to pay" at the agreed-upon terms of the loan.
On a new home purchase requiring renovations. The cost will be allocated to the purchase price, renovations, carrying costs, cost to resell, and also a small buffer for unexpected expenses.
Yes! We have worked with several lenders who have used money out of their qualified retirement accounts. We hire a third-party IRA company to move your money during the process - meaning tax-deferred interest!
This is a great question and valid concern. Our strategy is not to speculate 3 years down the road. Our goal is to purchase quickly and sell even faster. Most of our projects are complete and sold in 4-7 months. The market doesn’t tend to shift that dramatically in a matter of months - it’s typically a longer process for an area to decline. Remember, we’re buying in strategic areas where inventory is already low and demand is high; this greatly minimizes our risk.
If we purchase a renovation, we get a builder's risk policy (Vacant Dwelling Policy), as well as fire, flood, and wind. In case of any damage, insurance distributions would be used to rebuild or repair the property, or used to pay you agreed upon amount.
Typically, we pay one large lump sum at closing on a short-term note. This is much easier to manage for both of us, especially if we’re working out of a retirement account. On a longer note, we can pay monthly, just like a typical mortgage.
No. There is no government backed guarantee on these privately held real estate notes. You’re deriving protection from the equity in the real estate. If at any time we were to default on the note, you have legal right to take the home (essentially foreclose on us). Many investors laugh about this one and say, “I hope you’re a day behind on payments - I’d gladly take this one off your hands.” You have to remember that we plan for the worst, and our homes have tens of thousands of dollars of equity in them. So, in a worse case scenario, often times we just don’t make “as much” profit as we originally hoped for.
No, we do not pool funds. Your funding will be tied to one piece of property.