Making money with none of your own
October 15th, 2006 by KenricNo money down seems to be a popular catch phrase in most late night guru packages. The fact is that it is very appealing for people to make money using none of their own. Lately, I’ve begun to think about how I can do that and I’ve finally did something about it. I’ve become a hard money lender, sort of.
I set up an LLC that lends money to investors. The loan is secured by first mortgages on commercial property at low loan to values. The beauty of it is that I am not using any of my own money.
What I’ve done is create a network of investors that are happy with a lower return than what the LLC is receiving. The LLC pools this money together and provides one large loan to the commercial property. The LLC earns the spread between the rate of the first mortgage and the interest rate given to the investors. Instant cashflow with no money down!
Posted in Finances | 9 Comments »
Stumble it!
I’m trying, but I can’t quite understand how your LLC is structured. Can you add some more details?
Whose money is whose?
Is the mortgage in your LLC name?
Who owns the property?
Also, can you write more on the process of setting up the LLC and how you found it? How long did it take to set up?
By NLG on Oct 16, 2006
What are the terms you lend on?
How does someone get into your network of investors willing to lend money and what is the return?
Awesome idea!
By RealOG on Oct 16, 2006
It’s a real simple structure for now. I know it will get complicated in the future. I can’t give out too many details yet but basically, my LLC is borrowing money at say 5% from people. That’s all the people know and care about. They know that their money is going to be secured by a 1st mortgage in real estate.
The LLC takes the money, let’s just say it comes out to $100,000, and lends it to someone at 10% as a 1st mortgage.
Every month the LLC gets paid around $800 and it pays the people $400, therefore making $400.
The LLC doesn’t take long to set up at all, a few weeks at the most. Probably could be done in a day if you had to. I had one set up for my real estate already, but it was sitting empty because I sold the real estate that was in it.
I don’t want to disclose the terms yet as it is somewhat of a private network at this point. OG, email me if you’d like to know more.
By Ken on Oct 16, 2006
This business is a bank.
By moom on Oct 16, 2006
Good idea to give a try! Your theory is using OPM (Other People’s Money)
By Harrison on Oct 17, 2006
How do you get investors? The “late night” models tend to make you think you can start such an operation with no money down and no money to begin with. I find it hard to believe that you could successfully start this type of business without having money in the first place.
Catch a Gideon
By Brendan on Oct 17, 2006
I don’t think the late night models are talking about hard money lending when they say no money down. They are talking about buying properties using no money down.
I get investors by simply asking. Just find people who want more than a 5% return on their money.
By Ken on Oct 17, 2006
I’ve looked into becoming a hard money lender and it does have some very large pitfalls. Have you checked to see if doing HMLs falls under the jurisdiction of your state’s banking department? I know here in Iowa, there is an annual license fee of a few thousand dollars as well as a requirement for audited financial statements of the company(which cost a pretty penny). Of course this can be gotten around if you are just doing this infrequently and not as a business (which doesn’t apply here as a LLC set up for such would be a qualified business).
Two big costs I can see are insurance and any bad debt expense. Granted, both can be gotten around to some extent. For insurance, by limiting the number of and amount of the loans, you don’t have much to cover, which in turn reduces your premium. For bad debt, you should probably be doing first position loans with at maximum loan to current value of 65% to 70%. Also, you will probably want to become familar with how your jurisdiction handles foreclosures and the process of it.
You also need to check what your state and local usury laws are.
I’ve saved the best (or worse) for last. You have to be very, very careful about how you advertise for investors due to the fact that the SEC has some very strict rules about publically available debt and equity securities. And if you don’t dot all the i’s and cross all the t’s you could be in a world of hurt.
By Merez on Oct 18, 2006