Christian and secular investors alike can’t be blamed for pulling their money to the sideline. A spastic Wall Street stock market combines with a still-shaky economy (you know there’s something wrong when the current administration brags about 8% unemployment) to seed doubt in even the most nervy investor. Jason Hartman, founder of Solomon Success has been finding financial success lately through a series of private money loans made to a select set of trusted borrowers.
For those unfamiliar with the concept of private money loans, it is a niche of the loaning industry that specializes in making what are perceived as slightly riskier loans to people who have trouble securing property financing through traditional means. While some Bible-based investors might be a little leery of the idea for one reason or another, we look at it from the perspective of helping out a group of people in need.
A little background. The traditional lending industry is combined of banks, mortgage companies, and various other types of financiers who have a formula by which they analyze creditworthiness, usually by comparing an applicant’s income to debt ratio, etc. These days, with the foreclosure mess of the past few years still unfolding, it has become hard for people to get credit, and when they do, expect it to come with a down payment requirement perhaps as high as 25%.
That’s where private money comes into the picture. Often maligned in the popular press as little better than loan sharking, this perception misses the mark in at least some of the situations. One in particular caught Jason’s attention recently. To understand why Jason feels comfortable with the borrowers’ he’s chosen to make loans to, you first should realize that one of his other businesses is a real estate property recommendation service known as Empowered Investor Network. Through this network, Jason works with dozens of local market experts around the country to identify and recommend high-profit potential income properties to network members.
The business model for these specialists is to buy properties at a great price, rehab them, then either sell them locally or offer the best ones to Jason’s network. But financing is difficult for this business model, which is basically house flipping, because traditional lenders label such properties as “transitional” and create a maze of red tape and restrictions before they’ll loan money.
Since speed is essential in turning a profit, Jason and his market specialists put their heads together and came up with a plan. He and some of his network clients with money at their disposal decided to offer short-term private loans to the specialists. While your experience might vary should you decide to pursue this investment opportunity, Jason’s personal results usually earn him about 12.25% interest and a $500 upfront loan funding fee. Not a bad use for your money these days.
Of course, the first objection that leaps to mind is when Jesus threw the moneylenders from the temple for their usurious ways, and you can certainly interpret private lending this way if you wish, though we think there is a different way to look at it. Private lending fills a market need that isn’t met by the government-ordained rules and regulations of the traditional financing industry. Does this mean that these local market specialists should be shunned, left out of the game simply because their business model differs?
To our way of thinking, the answer is no. The higher interest rate is justified by the notion that these loans are considered riskier, though the reality of that interpretation is open for debate. Private lenders like Jason and his clients base their collateral needs not on a credit examination but rather on the underlying value of the asset, which is the property, itself. Just like a lending institution, private lenders stand first in line to take possession of the property by foreclosure in the event of a default.
Though we feel comfortable in this method of investing given these particular circumstances, we would issue this caution. No matter what kind of investing you’re interested in, never play with money you can’t afford to lose. Never risk scared money sthat is needed soon to pay the rent or put food on the table. You have to take care of your family obligations first, then you can start thinking about investments. If loaning private money through Jason’s network is something you’re interested in, please call him at 949-200-8009 for more information.
The Solomon Success Team
Flickr / PT Money