I’ve got cash, but don’t want the hassles of a property!
Congrats! What an awesome place to be!
And we get ya… Some folks know the value of banking cash and have the cash work for them at higher rates than stocks, bonds, CD’s, or other investments. And just so you know, there is absolutely nothing wrong with that!!!
Though, even people with cash can play in Real Estate while getting a better return on their money, and NEVER own a piece of property. How, you may ask?
People with money can be the bank. The can actually fund a deal. They can collect the interest from their deal, just like a bank would. They can have the property be collateral for the loan. So, as long as the property is more valuable than the loan, it is relatively low-risk*.
Of course, bank mortgages are for 30 years… Who the heck wants to loan for 30 years? Not us and probably not you. But you are the bank, so you can set the terms:
- Interest rate
- Amortization timeline
- Prepayment penalty
- Balloon payment
- Down payment
- Possible trade
Pretty much anything a bank can ask for, so can you. Anything you want to ask for (as long as it’s legal), you can.
You’ve gotta love Real Estate!
You also can decide what type of loan you want to do. We have seen…
- Hard money loans – very short term, normally for renovation projects
- Short-term loans (1 yr max) – normally for bridge loans to refinancing
- Mid-term loans (up to 5 yrs) – Most likely to allow for refinancing at a future date, and allows you to not tie up your money for a really long time
- Long-term loans ( 6 to 30 yrs) – Like the people you are doing business with, they’re going to be around a long time
The most important thing is that if you are going to loan your hard earned income, make sure you are protected—legally. Learn about deeds, learn about liens (you want to be in the first position), make sure you know who you are doing business with, and most importantly, make sure your money is working for you!!!
We really recommend that you learn both sides of Real Estate—the funding and the buying. As Sir Francis Bacon said, “ipsa scientia potestas est” or “Knowledge is Power.”
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*Remember, there is risk in EVERY investment. Please talk to a professional (lawyer, accountant, etc.) for appropriate advice in your state and for your deal. We are not telling you to do anything for anyone!