The news is by your side.

20% Returns with Private Money Lending: Lee Carney of Mountain Capital

4 1,225

As many of you already know, I just went in on my first private money lending deal. I was inspired to do so in part by a terrific book on the subject called Four Step Guide to Private Lending Profits: Earn 10% to 20% Return on Investment Without Dealing With Tenants, Toilets or Trash. It was written by Lee Carney, and is an outstanding resource on the subject. Lee’s book is broken down into very logical steps:

  • Find prospective borrowers (real estate investors, fix-and-flippers, etc.)
  • Underwrite the borrower first (due diligence on the person borrowing the money
  • Evaluate the property (determine the value of the property before and after investor does her work on the property)
  • Loan documentation (establishing a Deed of Trust so that you own the property if something goes wrong)
  • Loan payoff and workout (getting your money back and working with problem loans)

 

big_1399512292-avatar-lcarney14Lee was kind enough to speak with me on the phone and even sent along a free ebook, which is sort of shortened version of his book, for our readers. 

[thrive_2step id=’3236′]Click Here to Download Lee’s ebook – FREE![/thrive_2step]

 

Lee has now made Private Money Lending his full-time business and makes 20-25% on this money.

From our conversation I gleaned some more great insight on the business and how Lee makes incredible returns:

  • Finding Deals is Easy. I asked Lee how he finds deals, and his answer made me laugh: “Walk into a room full of real estate investors, and them ‘Who needs money?’” He’s right of course, I know a few real estate investors and they are ALWAYS looking for money to help them flip deals.
  • Fix and Flips Are Best. Like most investors, for Lee having cash in the bank is akin to losing money. So he wants to keep churning loans. The more quality deals he makes, the money he makes. So short loan periods work best, and that means short 4-8 month fix and flips make him the most money.
  • This Works in Small Towns Too. I asked Lee if investors in smaller markets could do this too. Lee is based in Spokane, Washington, population 200,000. Lee answered that there was more opportunity even in a smaller city like Spokane than he could ever service. He does occasionally do loans in larger markets like Seattle and Portland but prefers to focus on local markets that he knows best.
  • Private Money Lending Sure Beats the Alternatives. Like us, Lee is skeptical of the stock market’s long-term prospects as Baby Boomers retire. Plus he says “That game is rigged against us.” And active real estate investing, like owning rentals and flipping houses, is fraught with aggravation and headaches. While he works full time in the lending business, he considers it passive in that he has plenty of time for travel, leisure, and family. He, like us, knows the nightmares of owning real estate outright and feels this is a terrific way to get fantastic returns without having to unclog toilets on Saturday mornings.

 In the end, it seems the success of a Private Money Lender comes down to his knowledge of the local real estate market and ability to evaluate which people to invest in.

For instance, with the private lending deal I just did, my partner Chaz Britton had flipped a few condominiums in the same complex. Plus, we are both plugged into the Denver market and know it well. Chaz knows the borrower well enough to know that she is a solid person, with a background in fix and flips.

So if you didn’t have either of those things, how could you get started in this type of lending? Here are a few tips for getting to know your local market.

  • Join a local real estate investing group. These are not just for fix-and-flippers and real estate agents. There is a group like this in virtually every market and the information that is passed around is invaluable. This is probably where you’ll meet your future partners.
  • Read the newspaper. This may seem obvious but watch for local trends. Is there a sudden decrease in rental listings? How long are houses staying on the market? Is one area poised for growth, but needs to be improved from an aesthetic standpoint? These can represent opportunities.
  • Never eat alone. There is probably at least one realtor in town that knows the investing market from front to back. Buy her lunch and talk about what opportunities there are. She’ll probably know deals that need funding right away. Ask her about other private money lenders that you could team up with.

For even more information,[thrive_2step id=’3236′]get Lee’s free ebook[/thrive_2step], his full-length book, and then visit his website. Lee has a program where he’ll provide all of his loan documents and one-on-one coaching as well.

Stay tuned, we’ll have more from Lee as time goes on and we’ll keep you posted on our own loan experience.

Have you ever tried a private money loan? What was your experience?

4 Comments
  1. Sissy MacDougall says

    I have never tried the kind of private money loan that you’re talking about here. After reading Lee’s e-book, I think I understand the process with much more clarity. In fact, many of the concepts he talks about are very logical, yet the opposite of what I knew before.

    I would be a little leery of lending money, because at my age I would not want to lose it. He does say that the lender always gets paid, and I can see that it’s a secured loan. I’m just pretty sure that there is a way to lose money on it, but I’m not sure how.

    The main thing in question would be the borrower — does the person have experience with this kind of deal, and how has it worked out? Is he being honest and only borrowing from me, or does he have three other “investors” (aka “suckers”) thinking that they’re the ones who are going to get the house if something goes wrong? How do you know that you’re the only one with a lien on the house? Do you use escrow/title companies?

    One of the big “aha” moments I had was the section on speed being the essential component of making money. The rest of us are suffering along and waiting for bank approval, while there are others out there closing deals all the time in what seems to be a much better atmosphere. This revolutionizes my thinking about loans and banks in general. The fear of not getting a loan doesn’t seem to be an issue in this world. The lender and the borrower both want to make money together. And if you know what you’re doing, there are definitely people out there ready with hard money.

    Excellent post and thanks so much for giving us access to your interview with Lee and his materials.

    🙂

    1. Chaz Britton says

      Thanks, Sissy. Good points and good questions. Assuming this question is for funding someone to buy real estate, probably for a fix-and-flip. There is a possibility of losing money, but it’s slight. If you do the following, you should be really protected:

      • * Have the borrower put on property insurance and you are a “named insured.” Then if the property burned down, the borrower couldn’t take the insurance check and head for Mexico.
      • * Have a lender’s title policy, in case there were serious title issues you would be protected/insured
      • * You’re in “first position” with the deed of trust
      • * You make sure the borrower has some “skin in the game.” Make them put down 20%, or put in all the money for rehab costs or *something* so that they are incentivized to turn the money quickly and to complete the deal to get their money back out too.

      You’re right that you need to do your homework on the borrower, that *could* be more important than the actual deal! Look at some past deals that they’ve done, ask for references, and try to find some references if you can that they did not give you. I’m more interested in the jockey (who I’m loaning to), than the horse (the deal)…though you do want both to be good to “win the race.”

      And, yes, you MUST use a title or escrow (depending on the state) company to make sure that you are in deed (pun intended) in first position.

      Now, with all of this in place, what else could happen? The borrower could still head off to Mexico mid-way through a project (unlikely if they have money in the deal too). In this case, with a proper promissory note/Deed of Trust (DOT), you could foreclose on the property. If the deal was underwritten properly, this could turn into a best case scenario for you as the lender! You may be able to capitalize on all of the upside in the property and make more than you ever would with the loan. Of course, the property could need more work, but most (not all) “bad” situations, you should break even. Not bad, if 95% of the time you’re making a 20%+ return.

      1. Sissy MacDougall says

        Thanks, Chaz! That helps a lot. 🙂

  2. Phil says

    I liked reading this article. There is lots of great investment information in Lee’s free e-book! Is there another book coming out?? I would like to make Private Money Lending my full time business too!

Leave A Reply

Your email address will not be published.

Franklin Society Alerts!

Ben says, "Join our mailing list to receive high-yield, alternative investment ideas and portfolio results delivered to your inbox weekly." Subscribe today and you'll also get  TWO free gifts worth $78!

Congrats - you're in!