When Can You Expect Your Money Back?
Most real estate flips take anywhere from three-to-six months from the day the property is acquired, to when it’s sold to an end buyer.
You get paid after the property is sold to an end buyer.
How is Your Money Secured?
While the high interest rates you make on your money are attractive, the security you get with these kinds of investments is impressive as well.
The Property is Collateral
If the borrower was to default on the terms of the loan, you get the property.
Why? Because you fill out and record a mortgage that puts in the first lien position.
The Property is Discounted
At first, you might not be too enthused about the idea of taking over the property as security.
But you don’t just get “any” property. You get a property that is worth a LOT more than what was paid for it.
In the property rehab business, it’s about buying low, fixing-up the property, and selling it at a higher price for a profit.
In the private lending business, you never want to lend any more than 70% of the after repair value (ARV) of that property.
That 70% number is called the LTV, or loan-to-value ratio.
Related: See How Easily You Can Find Detroit Houses for Sale Cheap
Example
Let’s say you’re going to lend the money to a real estate investor to “flip” the house at 123 Main Street.
If that house is worth $100,000 after it’s repaired, you don’t want to lend more than $70,000 on the deal.
That way, if you end up taking the property back, you’re going to have a ton of equity left.
That equity gives you a lot of options regarding what you can do with that property.