I always get a lot of questions about how to handle the money so I'd like to go over a few of the basics.
Touching the Money
Sometimes when people hear the kind of interest I pay they will get so excited about loaning me money that they want to hand me a big check right on the spot. This is not the way to handle the situation. I want them to send the check to my attorney for the closing on a specific property. I know that some of you are so eager to launch this new phase of growing your business that you really want to take that first check but don't do it. This is the procedure: Go over paperwork, have a meeting of the minds, and then they send the check to the attorney for closing. Nice, neat paper trail and well-informed lenders.
Co-Mingling Funds
Here is a common scenario: You will have two lenders who each have a small amount to loan. With the combined amount, you have enough for a particular property. Question: Can you just put the money together and have them share the first mortgage? You cannot typically co-mingle funds. Now my procedure is to give a lender a first mortgage on a property. If I need additional funds, I can give another lender a second mortgage after explaining to them that the first mortgage holds a stronger position. But... if you do some paperwork with the state and set up an entity. Then you can...
When Do The Payments Start And End
This is a little tricky for some real estate investors to understand. The best way to structure this is to start paying interest at the time of closing. Their money is loaned so they should be earning interest. My job is to make repairs and get the place lease optioned so it is producing income to cover the interest payments I need to make to the lender. I get this done as quickly as possible. I continue paying interest to the lender as long as their money is on the property. When the property sells, They get a check at closing for their principle and interest.
I ask them if they want to loan their money on another property. Nearly all will say yes and then, their interest payments start again at the next closing (to buy) table. So they earn interest while the money is loaned – from purchase to sale. Now if I have some ones money less than 90 days, say on a house I wholesale, I do pay a minimum of 90-days interest on all loans. I just want to be fair. The lesson here is avoid the temptation to grab those checks and cash them. Run a professional operation and have your business rules in place and follow them. You'll be much happier in the long run.
Alan Cowgill is the owner of Colby Properties, LLC. and President of Integrity Home Buyers, Inc. Alan is a full-time Real Estate Investor, investing in single family and small multi-family properties in Springfield, Ohio.
Since 1995, Alan has bought and sold over 200 investment properties. Alan uses Private Lenders, not banks; to fund his real estate purchases. By doing this, he has created his own private bank of $2,000,000 in funds. Alan looks for "Win - Win" situations, where the seller, the lender, and the eventual homeowner can all "Win". He is not a Realtor, but a Private Investor.
Alan has served as an elected official to the Board of Directors for the Clark County Property Management Association. He is an author, consultant and national speaker. He has been asked to speak on the topics of “Investing for the Beginning Investor.” and “Finding Private Lenders.” His home study system, “Private Lending Made Easy”, shows new and seasoned real estate investors how to find private lenders for their own real estate business.
In addition, Alan:
• Holds a BS Degree in Business Management.
• Has over a quarter century experience in Business Management.
• Is a published author not only for Real Estate but also in American Industry.
• Featured in the Business Section of the Springfield News-Sun newspaper in May, 2001. Article on real estate investing in Springfield, Ohio.
• Adjunct Professor for 5 years at Clark State University.
• Acknowledged in the book “e-Mail Basics” ISBN #0-9676313-1-9.
• Speaking Engagements include: Yovel, England; Dallas, Texas; Fort Collins, Colorado; Atlanta, Ga.; Jacksonville, Florida; Cashiers, SC.; Las Vegas, Nevada and Springfield, Ohio.
• Business trainer and consultant.
• Member of the Springfield Chamber of Commerce and Better Business Bureau.
• Appeared on a twenty-eight minute real estate infomercial that is shown nationwide.
And best of all, Alan Cowgill is married and the father of three children.
Copyright 2002-2008 All Rights Reserved.
Published with Permission of Author.
No part of this publication may be copied or reprinted without the express written permission of the Author and/or REIClub.com.
Printer Friendly Page
Send This to Friend
