Okay, you’ve convinced yourself it’s finally time to take the first step and invest in private notes. You’ve other investments in stocks and bonds but providing funds used to acquire and rehabilitate investment real estate may be a bit different. For us it’s certainly not because it’s what we do. When we put together a potential project for your evaluation, it’s you who decides whether or not to make the investment on that particular property. This is compared to a pool of funds that a hard money lender uses at its disposal and funds a project at its own choosing.
In its most basic form, a pool works in this way. Private investors provide the hard money lender with a certain amount of funds. Hard money lenders will have a minimum investment to these pools. When a buyer finds a project to acquire, the hard money lender decides whether or not to approve the loan request without the need to consult the individual investors who funded the original pool. In this fashion, investors are paid an agreed upon amount of interest for the use of those funds. Individual investors can review previous successful transactions but do not have the authority to approve or decline any particular transaction.
In your instance, we put together a package for you to review. This package has been prepared with sufficient information that will allow you to make the decision whether or not to participate on any particular deal. If you don’t wish to fund an office building in Houston for example, you don’t have to. It’s completely your decision. Instead, you may want to pass on that opportunity yet participate on a 2-4 unit property in Austin.
Note that while there will be minimum investments with either approach there really isn’t any maximum. For example, a project may require a $200,000 loan. You may elect to provide the minimum investment of $50,000 or you may decide to fund the entire project. In either instance you will still be paid interest on the note monthly and your funds are secured with a first lien in your name, but it’s your choice. Many of our investor clients started out small and gradually moved onto bigger projects and that might be a very good strategy for you, especially if you’re new to investing in private notes.
That’s a familiar strategy for most. Starting out small, learning the process through experience and expanding your role as you participate in more and more deals. That’s the road many investors take, and you can too. Feel free to contact us for referrals to investors who have been with us for years and you’ll likely hear a very familiar story. They started out small and took it from there.