Protecting Your Private Money Lenders With Reasonable Loan To Values

I am a huge advocate of spending part of your marketing time each day marketing to find new Private Money Lenders (links to exclusive resources for our Real Estate Investor Bronze Members) that are willing to work with you in a win-win relationship to help you purchase more investment properties and for them to get a safe, secure, fair return on their money. Protecting your private money lenders with, what I refer to as, reasonable ratios of the loans they make in comparison to the current fair market value of the property is critical to your long term success as a real estate investor.

So, what does it mean when I say reasonable loan to values?

Well, for all but a few rare exceptions, I am recommending that you do not exceed 80% loan to actual, current fair market value.

Does that mean you can’t do no money down deals with private money lenders? Absolutely not. You should be buying properties that are less than 80% of value. You can ask them to fund 100% of the purchase as long as the loan they are making is less than 80% of the actual market value of the property.

This is not the time to be cute and use an artificial value. This is not what the property was worth a year ago before the market dropped 10% (or more). This is not your wishful… I hope it will sell for this in a year from now. It is not the rent to own price that includes some speculative appreciation. I am saying it is the price that you could sell the property for within 3 months of having a real estate agent sell it for you. That’s the number to use. And, in slow markets, it may be lower than you think to get it sold in 3 months.

So, for a long successful career investing in real estate with the help of private money lenders, I recommend you keep their loan to values at very conservative levels.

Until my next post,

James

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