What is Private Lending (CANADA)?


Hi my beautiful badasses!! I hope you are having a good week. 

.....Today I want to talk to you about my first exposure to a non-common investment practice, Private Lending....

When you hear people talk about real estate, they mostly talk about buying, holding, and selling; but it is very rear the person that talks about, or has knowledge on, private lending. So today, I'm going to give you a small summary of what it is and how it works.

For today’s blog post I will be referencing a white paper that was given to me by a close friend of mine, Huong Luu. She is a great example of a successful woman, she is an expert in real estate and she has a unique understanding of this subject. She has had the opportunity to be on the side of the lender and the borrower. The insights she has share with me have helped me understand the idea of private lending and it is my duty to share them with you! 

What is private lending?

Refers to lending money to a company or individuals by a private individual or company.

Why is it useful? 

It is useful for people that get denied loans from banks (traditional mortgage lenders) due to maybe not having a steady job, non-steady income stream, low credit scores, or already having too many loans, etc…. The loans can be used to expand their real estate portfolio, to grow their business or to settle certain debts. 

 How much risk is involved in this type of investment?

Well, the risk is relatively small as the money that you are lending is usually protected because there is collateral against it. Meaning that there is usually a piece of property that can be sold to get your money back. This type of investment is within the real estate bubble and it is considered to be a passive income stream. 

It is always important to lend money against something that has collateral; there are always people that do not care but this is not recommended. Let’s also point out that there is always a risk to loose your money and that is why, you must ask this question to yourself…

....If I lose this money, would I be able to sleep at night ???.....

How much money do you need to lend it out?

As the lender you must have anywhere from $50,000 to a few million dollars. You can always start with a lower amount, but the effort is not worth the ROI (Return on Investment). 

How much can you charge a person for lending them money?

It can vary from 6% up to 20% interest rate, plus 1% to 3% of lenders fee. This will depend on the risk you are taking on the borrower, specially if they already have other mortgages with other people. I can expand more on this if you want me too, but the idea is that the funds of a foreclosure property, will be distributed to the 1st mortgage holder, then the 2nd mortgage holder, and then the 3rd mortgage holder. Usually people on the 3rd mortgage position charge a higher interest rate and lenders fees as they are the ones taking the most amount of risk.

Duration of the Loan ?

It is usually for 1 year or 6 months 

How do you get paid? 

The borrower will pay you interest only payments. This means that the borrower will pay you interest on your money each month, and the principal amount (initial investment) will be payed back at the end of the loan. The borrower is also responsible for paying all legal fees and a lender fees. 

Let’s look at an example ....
You are asked to lend $80,000 to a woman that is trying to expand her real estate business. She has been denied another load by the bank because she already has too many. She came to you to borrow money privately, and you decide to agree. You tell her that you will be lending her the money at 10% interest rate with a 3.5% lending fee and she has to place her home property as a collateral. Let's find out if it is a good investment....

Initial amount = 80,000
Legal Fees = $1,000
Lender Fees @ 3.5% = 2800
Total Loan = 83,800
@ at 10% interest rate, you get a monthly payment of:
= 83,800*0.10 = $8,380/12 months = $698
Therefore, at the end of the loan, you made
= 2,800(lender fee) + 8,380(monthly interest rate) = $11,180 :D!!

As you can see, sometimes investments like this can be more beneficial than leaving your money in the bank. 

Lastly, it is important to point out that you must have a lawyer representing you and he/she should have an understanding of private lending. Also, all the money you make with this type of investment, is taxable! 

I hope the information was easy to follow, if you have any questions please don’t hesitate to leave me a comment.

NOTE: This is not legal financial advice. This is me just sharing my own knowledge on things I've invested my money in. 

Till next time my lovely friends, Ursula Keith


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