When considering financing through a investment property loan, You must first locate a private lender with an interest in your particular real estate business. Investment property loan lenders are ordinary people who are willing and financially able to finance their real estate business from their own assets. You can locate private lenders by networking with others in the business, asking for referrals, or making a public introduction to a pool of potential private lenders.
Assuming you have located the private mortgage lender, you will need to schedule a meeting to negotiate the terms of the private mortgage loan. Keep in mind that the private lender you choose may obtain funds for you through a commercial institution or through personal assets such as bonds, stocks, or cash. You’ll want to negotiate terms that present a win-win situation for both you and the lender.
Financing your real estate deals through an Investment Property Loan is not difficult however; It will involve a few simple steps with documentation that will include a promissory note, a mortgage, a certificate of insurance, and a disclosure statement. It’s also a good idea to consider any federal or state security (SEC) issues that occasionally come up through the private loan process.
The Note and Mortgage Document: The note and mortgage document the terms you have agreed to with the private lender. The Promissory Note spells out the terms on which the lender has agreed to finance your real estate business, as well as the terms on which you have agreed to borrow the money. The mortgage outlines the terms of your performance as a borrower and is usually filed by an attorney at your local county office to ensure the filing process is done correctly.
Certificate of Insurance: The Certificate of Insurance is obtained from the insurance agency of your choice and must be provided to your private lender. Property insurance must include a title to your lender and a title to you as the borrower. It must also describe the exact terms of coverage regarding the type of property and the causes of loss, such as flood, basic, comprehensive, special, or earthquake.
Disclosure Statement: The use of a Disclosure Statement is always a good idea in a real estate transaction due to the fact that investing involves uncertainty and risk. The Disclosure Statement will describe the risks to your private lender, as well as your plans for the use of the property and any potential for change during the course of the transaction. This statement acts as a guarantee that both you and the lender are aware of the potential risks involved before entering into the real estate transaction.
Federal Regulations: You should consult the federal regulations, as well as those of your particular state, regarding what is called the issuance of a Security. In many cases, when you work with a private lender, you will consider issuing a security under SEC guidelines. To avoid any problems, you may need to register with your state or federal SEC if you do not fall under certain exemptions.