I can totally imagine someone calling from an airport in Vegas to ask someone to wire them money but what I want to tell you about today is a friend who wired 30,000 dollars to a stranger from an airport in Las Vegas and why he did it.
As I’ve written about before, we like to borrow from other private individuals to fund our deals and we have happily borrowed and paid back many loans with high interest. It allows for a win/win when the lender gets great returns and we get to take on a project that we couldn’t fund from savings. This led us to investigate lending to other investors so we could make some of the types of returns we were paying our lenders. So in addition to being investors that buy single and multifamily investment properties, we are also now lending our IRA savings out to other investors through the use of a self-directed IRA. We hit a wall however whenever our money is all loaned out on a deal that may tie up our money for six months. We, of course, have limited funds to loan. This most recent experiment was co-lending with another firefighter on an investor’s project. I think this may be interesting to you if you have less money than you think may be needed to lend on a real estate project but you still want to get involved in lending.
Here’s how we structured our deal and some ideas of other ways this may work. We got the idea when a family member had some cash that she wanted to put to work but couldn’t afford to put into a high risk investment. She wanted to invest 30,000 and we devised a plan to co-lend with her. She would be in first position (safer) and we would lend behind her in second position (more risky).
When investors need money they usually need it quickly – within a few days to a week. Our relative didn’t feel confident doing the deal with so little time to research it. She was also traveling abroad at the time so she declined this one.
We like doing business with these borrowing investors because they are so professional and experienced so we really wanted to come through with the funds for them. I then recalled a friend who had inquired about ways he might invest the money that his father had left him when he passed away. We had discussed many different options and I told him I would contact him when we heard of any deals but the amount he wanted to lend was less than most investors needed to get a deal done.
Veronica has taught me that if you have a good deal, the money will be available. I thought about that after considering that we would have to tell our investor friends that we couldn’t fund their deal on such short notice – something I was not fond of doing. Then I remembered that conversation with my friend. I called him, coincidentally, just as he landed in Las Vegas. He was very interested in the deal, the interest rate, and the opportunity to co-lend with us. He said to send him the wiring instructions and he would wire the money. And he did just that! He thanked us for including him. This is one more instance that I have been reminded of how networking can truly lead to a win/win opportunity.
While all investments worth doing require some risk, I really like doing deals that are tied to real estate that has real value to protect our investment in a worst case scenario. The fact that my friend invested along with us was a compliment. We shouldn’t make loans like this with our lunch money; these are loans to grow wealth but not to make money we need to live on in the immediate future. Sometimes these loans can drag out until a project reaches completion but they would be accruing interest during that extension. In a worst case scenario, we would have to foreclose on a project and take it to completion ourselves. Double digit returns with real estate as collateral is a pretty great option to grow retirement funds.
I’m trying to gauge how many people in my network would be interested in doing these kinds of transactions on the borrowing or lending side. If you want to learn more about these opportunities please email me at email@example.com and just type “interested in lending” or “interested in borrowing” and I’ll keep you in the loop as more of these deals present themselves to us. The benefit is that we get to help more active investors (rehabbers) and passive investors (lenders) by co-lending our funds. The money can be from savings or a self-directed type of retirement account. I would say 10,000 dollars would probably be the minimum amount to get involved but this could be a great way to diversify if you don’t want to put all of your retirement eggs into one basket.
This deal hasn’t come full circle yet but I feel confident that my buddy will get a better return than he got in Vegas and will be wanting to do more of these in the future just as we have.
We hope you all are well and that through this hectic holiday season you are able to “keep the main thing the main thing”