1. real estate

Discover how to
like the banks do...
Special Report
Building Wealth Through Private Lending
presented by...
www.HuberPropertyGroup.com
Disclaimer
This is not a Security nor an offer to sell Securities. The information provided herein is
not intended to be for the purpose of soliciting a Security under State or Federal
regulations. The information is intended to give the private investor alternatives to stock
market investments, but is not intended to be a solicitation of a Security under SEC
rules and definitions. This is intended to be a private borrowing transaction with the
individual loans secured by real estate title to benefit an individual. Huber Property
Group, LLC, and its affiliates are not licensed securities dealers or brokers and as such
do not hold themselves to be. This presentation should be construed as informational
and not as an advertisement soliciting for any particular purpose.
Reproduction or translation of any part of this work without permission of the copyright
owner is unlawful and strictly prohibited.
Huber Property Group, LLC
Phone: 616.730.3355
[email protected]
www.HuberPropertyGroup.com
Copyright 2013, Huber Property Group, LLC
All Rights Reserved
Huber Property Group, LLC • 616.678.2727 • www.HuberPropertyGroup.com
Table of Contents
Introduction
Congratulations ........................................................................................................... 1
Bank = Middleman ...................................................................................................... 3
Middleman Security ..................................................................................................... 3
Eliminate the Middleman and Prosper ......................................................................... 4
Is this a Scam? Why Have I Never Heard About this Opportunity Before??? ................. 5
Using Private Money Lending to Your Advantage
The Middleman is Gone - Now What? ........................................................................... 7
Don't Panic: Use a 3rd Party ........................................................................................ 8
Protection Tools ........................................................................................................... 9
The Equity Cushion ................................................................................................... 11
Security Tools ............................................................................................................ 13
The Story of Bob and Betty
Background ............................................................................................................... 15
The "Traditional" Choices ........................................................................................... 16
Time/Hassle Management: Active vs. Passive ............................................................. 21
Finding Comfort Level ................................................................................................ 22
Screening the Investor ............................................................................................... 24
Their Results ............................................................................................................. 30
Conclusion
Final Comments & Thoughts ..................................................................................... 32
Huber Property Group, LLC • 616.678.2727 • www.HuberPropertyGroup.com
Introduction
You’ve worked hard for your money. You’re also a good saver. So why is it so
hard to earn a decent return on your money? An investment option that is in your
control and secure, but more importantly, a whole lot better than
the "stealing rates" banks are currently paying. Perhaps
"stealing" is a bit harsh; however, when you consider the
majority of saving account and CD interest rates are below the
rate of inflation, "stealing" is basically what it is.
Sure, there is The Uncertainty Market
(whoops, we mean The Stock Market), but
you've got to be prepared to "roll-the-dice" to enter that arena.
You can also consider bonds that are backed by the government, but
again, settling for these "stealing" returns just isn't ideal.
The conventional mind-set is just that. I have three options. I can put my money in the
bank, stock market (mutual funds) or bonds. Have you ever found yourself thinking, "I
wish I had more options?"
The good news is this...
There is another wealth generation strategy that the main stream media and your
financial advisor don't like to talk about since it does not benefit them. This is a strategy
that anyone can do. It is a 100% legitimate/legal option you can use to help diversify
your funds and build financial wealth!
The even BETTER news, perhaps, is that you can diversify your IRA and/or 401k
retirement funds towards this strategy.
Congratulations!
We'd first like to congratulate you for breaking away from conventional
thought and expanding your wealth generation boundaries. Too many
people are herded like sheep by the mainstream financial
media. You, on the other hand, are reading this, which
hopefully means you are sick and tired of the "typical"
choices you are given to grow your wealth. You are taking your financial
future into your own hands, and for that, we applaud you!
Huber Property Group, LLC • 616.730.3355 • www.HuberPropertyGroup.com
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We'd now like to welcome you to the world of Private Mortgage Lending – which, when
done properly, is a highly lucrative way to build wealth!
Lucrative, because you get to play the traditional part of the bank! Meaning, you are in
total control of your money and will have the control needed to avoid making the same
mistakes that banks did which led to many of their failures.
The ironic part is, the banks had (and STILL "has") a
great strategy to make money. As long as they made
good choices, there was a steady stream of profits.
Their problems arose when they got greedy, made
bad choices, and then strayed off the path of "what
worked." By straying from the path, they made money
for a while, but as we all now know, there business
model of lending money backfired on them.
Many look at banks as evil and greedy, but, regardless of how you personally perceive
them, we have to give credit where credit is due: banks have a solid profitable business
model (assuming, of course, they make good choices and stay on the path "that works").
What most people don't realize is that they can use this
EXACT SAME business model with their own finances to
generate their own personal wealth.
If having control of your finances and the ability to
generate profits like the banks do sounds worth learning
more about, then we are confident you will find this
report extremely valuable.
Not only are we going to show you 'how' to use the
bank's strategy, but we'll show you 'how' to stay on the
profitable path and avoid the dumb mistakes the banks
made.
In order to understand the concept of Private Mortgage
Lending, we're going to first talk about the strategy that
banks use to not only generate profits, but also to
protect the money they loan out.
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Bank = Middleman
Banks are not stupid. There is a reason they hire the brightest minds. They understand
the relationship between risk and return. The greater the risk, the greater the return.
The opposite is also true, if the risk is low, so is the return.
With this in mind, when banks promise to pay you a fixed rate on your money, they want
to be extremely confident that they can deliver.
Remember though, they still need to make a profit. They are in business too. Banks
make their money by borrowing from small investors like you at low rates and then in
return, loan YOUR money out to SOMEONE ELSE at much higher rates. The difference
is their profit.
For example, if the bank is offering you 2% interest
and you deposit money with them, they will then
lend YOUR money to someone else and charge that
person/company 5% interest. The bank in return
makes 3% profit on YOUR money.
So, in reality, the banks are just middlemen,
borrowing from you at low interest rates and then
loaning your money to someone else at higher rates.
The security you’re offered in return depends on what type of bank investment you make.
Some may be insured by the Federal Government, while others may be more risky.
Middleman Security
We have now identified two key concepts:
1) The banks are loaning your money out to someone else.
2) The banks don’t like risk.
With these two concepts in mind, this brings up a very obvious
question: How do the banks establish security in order to protect
themselves from the possibility that the borrowers they loan your
money to will not repay those loans?
The banks simply obtain collateral for the loans they give. They take an interest in an
asset that has a value greater than the loan they are giving. In many cases, the best
asset they can find is a borrower’s physical home.
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Picture this (maybe you've experienced it first hand). A person walks into the bank to
borrow money, the bank says,
"No problem, we’ll give you a loan as long as you have something you can give us. We need
this asset so that we can sell it to get our money back, just in case things don’t work out
and you can’t pay us back."
This agreement is what is known as a “s
secured loan.” This
practice is by no means a 'new' or 'ground-breaking'
business model. The bank simply puts a lien on the
person's house (mortgage) and then makes a loan to them.
If the loan is not paid back, the bank takes the house and
sells it to get their money back.
We can all agree that this concept is not rocket science. Sounds easy, right? Well, in all
actuality, it is. In fact, there are numerous people who are buying and selling real estate,
and many of them would be thrilled to pay you a higher return than your bank is in
exchange for you lending them money.
We're not talking about "hand shake" agreements either. We're
talking "secure loans" where you'll be given a lien (via legal
documentation, NOT a hand shake) on their house.
With the lien in place, you are now in the same position as the
bank. You have something of value owned by the borrower,
where in the event they do not repay the loan, you can seize the asset and sell it for
yourself in order to recoup your loan (and in some cases, perhaps profit even more).
Eliminate the Middleman and Prosper
By doing what was talked about in the previous section, you eliminate the middleman
and put yourself in a position to prosper as you will earn the higher rate of return that
the bank would, instead of the lower rate of return the bank
would pay to you.
When you eliminate the middleman, you "become the bank"
and begin to prosper just as they do.
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In order to kiss the middleman bank "goodbye", you need to locate an individual (most
likely will be a real estate investor) that matches these four pieces of criteria.
1) They are in need of a loan.
2) They are willing to pay a high interest rate to obtain the loan.
3) They have a physical asset (piece of property) that is worth more than the amount
they want to borrow.
4) They are willing to give you a lien on the asset to secure the loan.
If criteria 3 and 4 are not possible, then this is a deal breaker! Finding someone
interested in receiving these types of loans is NOT like searching for a needle in a
haystack; therefore, there is no need to work with someone who is not able to
accomodate criteria items 3 and 4.
We will go into more details about this in future sections, but at least wanted to
introduce you to the basic concept of how "becoming the bank" works and can benefit
you in generating wealth.
Is this a Scam? Why Have I Never Heard About
this Opportunity Before?
In short, NO, nothing we have introduced you to is illegal or impossible to perform. We
know there are lots of jokes regarding "banks being crooks", but everything we have
discussed thus far is one of the primary business models the bank uses to generate
profit, which they've been doing for a long time, so rest assured, everything is legit.
So why haven't you heard about this opportunity before? To put it bluntly,
one of the main reasons you haven't heard about this opportunity from an
investment advisor is that there are generally no commissions for them to
earn from this type of transaction. Because there is no money in it for them
to make, they, along with the main stream financial media, choose to
remain silent about it.
Investment advisors generate profits through fees and
commissions. With this being their business model, many mutual
funds, insurance, stock and investment companies pay investment
advisors large commissions for getting their clients to invest in
their investment products.
On the flip side of the coin, the average real estate investor isn’t a
large Wall Street company or investment advisor. Add to this the
fact that they may also be prohibited by state or federal securities
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or other laws from paying any kind of commission without first securing certain licenses.
When you combine these two points, it becomes obvious that real estate investors make
money from real estate, not fees and commissions.
Real estate investors operate under a different business model.
They simply want to borrow money to invest in below market
value real estate, and they are willing to pay you higher interest
rates to do so. And as we mentioned, because their profits are
generated from actual real estate, they don't need nor are they
looking to charge you a bunch of commissions.
This is a great benefit for you as a “private lender” (someone who invests in these types of
transactions) because the investment is in your direct control, and along with this, your
returns have the potential to be that much greater since
you will not be required to pay fees and commission to the
investor. Greater returns mean your wealth will be able to
grow that much more efficiently.
In a few words, you usually don’t hear about these deals
because there’s nothing in it for the middleman
investment advisor to make money!
Huber Property Group, LLC • 616.730.3355 • www.HuberPropertyGroup.com
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Using Private Money
Lending to Your Advantage
In the previous section, we provided an overview of private money lending
and how it can be used to provide you with much better rates of return than if you
walked into your local bank. Specifically, we reviewed how
private money lending eliminates the middleman (the bank)
and puts you in their place where you can earn two to three
times the rate of return you would most likely be paid as a
traditional certificate of deposit holder ("bank CD") or with a
money market account.
Since you have now learned the basic concept of private
money lending, we'll explore the terms and tools that
private lenders need to have in their tool belt in order to profit from this lucrative
opportunity. And of course, we'll cover how private lenders can use key tools to hedge
themselves against the risk of losing the funds they loan.
The Middleman is Gone - Now What?
You've made the profitable decision of eliminating the middleman,
but now what? You've got money ready to lend, but no one to lend
it to. Finding people to loan money to will change very quickly if
you take the proper steps. In all reality (and probably not a
surprise), there are lots and lots of people who would like to
borrow money from you. The challenge is finding deals that "make
sense", that can be secured by a physical asset and that give a
good cushion of equity to protect your loan.
As we briefly mentioned earlier, one of the most efficient ways to find these types of deals
is to locate real estate investors. Investors are constantly looking for private lenders who
will loan them funds at a rate that is two to three times what the bank is paying. To go
along with this, assuming they are operating a reputable business, they will offer a
physical/tangible piece of real estate to secure the loan.
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There are a multitude of ways you can locate real
estate investors. You can usually find real estate
investors at real estate groups, real estate
investment clubs, on the internet/social media
(Facebook, Twitter, LinkedIn) and many other places.
You know what? You've already found one real estate
investor by reading this eBook: us!
For a detailed packet on our (Huber Property Group, LLC) private
lending opportunity program, call (616.730.3355) or write us
([email protected]). We would be happy to share the
details of our program with you along with helping to educate you
in how these type of programs work.
Don't Panic: Use a 3rd Party
First things, first. The next few sections may seem overwhelming and complicated. In
order to generate the best return on your loan, you need to do some homework and make
sure you are loaning money on a good deal. We know no one likes homework, but when
it comes to private loans, if you know "what" you're looking for (which the next sections
will cover), making the loans does NOT take much time at all!
How can this be the case? The real estate investor you are working with needs to be
working with a 3rd party.
Depending on which state you live in, this will either be a real estate
attorney or a title company. In the state of Michigan, where we invest for
example, title companies are the traditional means to use as a 3rd party.
Like anything involving money (especially when it is YOUR hard earned money), there
needs to be documentation and insurances put into place to protect
it. As you go through the next sections, do not panic and start to
think, "this is sounding way too complicated and time consuming."
The point behind the next sections are to ensure that you know what
documents of the deal need to "be there". By using a 3rd party, you
will not need to worry or spend your time "getting them there."
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As a quick example. If the real estate investor is telling you none of the documentation
needs to be publically recorded, that is a deal breaker. After reading the following
sections, you will understand that public recording needs to "be there" (a part of the
deal). However, on that same note, you personally do not need to do
the recording. This task would be in the hands of the 3rd party.
Perhaps now you're thinking, "Well this is great I don't need to spend
a ton of time with all the documentation, but how much is this 3rd
party going to cost me???" A very valid question, but in all actuality
there should be zero cost to you. Any reputable investor or company
will pay for the 3rd party. We won't go quite as far as saying if they refuse to pay for the
fees that are associated with using a 3rd party, then it is a deal breaker; however, this is
something we as a company pay for.
Finally, a friendly warning. We will be repeating ourselves over and over again in regards
to the 3rd party. We just want to be sure that you understand there is no need to get
overwhelmed or think the process is too complicated.
Protection Tools
When you decide to enter into a private lending deal with a real estate investor, before
you invest a penny, you need to be sure you are protected!
Case in point, the banks became lazy in this regard, and we all
know where that got them... in a world of hurt!
While the following list may seem like a major hassle, the 3rd
party we discussed in the previous section will take care of the
obtaining and verifying of these items (no need to panic).
In the list below you will find the "tools" that should be used to construct your private
money loan. We will talk about a few of them in detail, including The Equity Cushion
which will have its very own section (that is how important it is!).
 Copy of the deed to the property
 This will tell you who actually owns it.
 Recent Title search
 Makes sure the deed is still accurate.
 Title insurance policy
 Will insure against ownership challenges.
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 Hazard insurance policy
 Will insure casualty losses (fire, water,
etc.)
 The Equity Cushion (will talk about in next section)
 Property inspection (if available)
 Repair Estimates (if repairs are needed)
 Investor’s plan of action
 Need to be sure the investor has an exit plan.
When the 3rd party puts all these pieces together for you, it accomplishes two key
elements. First, it helps protect your loan and secondly, ensures that you are dealing
with a real estate investor who has a game plan and knows what they are doing.
If you can’t get this type of information (or the investor
refuses to use a 3rd party for the transaction), then you
should seek out a different real estate investor.
Title Insurance
Title insurance protects you against loss arising from problems connected to the title of
the collateral (the house) you have a vested interest in.
Prior to making the private loan to a real estate
investor, the house may have gone through several
ownership changes, and the land on which it stands
likely went through many more. There may be a
weak link at any point in that chain that could
emerge to cause trouble.
For example, someone along the way may have forged a signature in transferring title. Or
there may be unpaid real estate taxes or other liens. Title insurance covers the insured
party for any claims and legal fees that arise out of such problems.
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Hazard Insurance
Title insurance is only half of the insurance protection that you need in place. The other
half of the insurance protection is obtained via Hazard insurance. This is important as
you need to be certain that your loan on the house is protected in the event that the
house suffers some sort of damage or destruction during the period of the loan.
With this in mind, you should also require your private money borrower to maintain
hazard insurance on the house protecting against loss from fire, theft or similar
circumstances.
In the event something does happen that causes
your borrower to default, you want to be sure
that the value of the property is sufficient to make
you whole on your loan.
In other words, if the borrower defaults and then
hands you a house that has burned to the ground
with no hazard insurance policy in place, you'll
quickly find yourself in a spot you do not want to be.
The Equity Cushion
We don't want to diminish the importance of the tools we
have noted on the previous page as they are all
important; however, in order to make private lending
lucrative for yourself, there is one standard that needs to
be met: the equity cushion.
Remember, in our introduction section we talked about
how banks use this "equity cushion" to protect
themselves against the borrower not being able to pay them back. In this event, the bank
can take the physical asset secured against the loan (the actual property) and sell it to
recoup their money. You must do the exact same.
In order to gain this cushion, you must be sure that the property you are making the
loan on is worth substantially more than the amount you are lending.
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Loan-to-Value Ratio (LTV)
The Loan-to-Value (or "LTV") is a term you must learn to love and
utilize. By using it properly, the LTV acts like a compass leading
you to favorable Risk vs. Reward deals. Due to the importance of
the LTV, we are going to spend quite a bit of time explaining it so
that you have a solid understanding.
Because YOU ARE THE BANK, you dictate what type of LTV you are
comfortable with for your loans. You are the boss of your money. Not
your financial advisor, not your stock broker, not your personal
banker... YOU ARE!
The lower the LTV, the greater your security cushion.
The LTV is calculated by dividing the amount of the loans (other than yours) on the
property against the real current value of the property if it were to be sold.
LTV, % =
All Outstanding Loans, $
Value of Property, $
x 100
For example, if you find out that all the loans outstanding against a property total
$80,000 and the property is worth $100,000, then the property would have a loan to
value ratio of 80%.
LTV =
$80,000 x 100
$100,000
= 80%
Because of its importance, we're repeating...
The lower the LTV, the greater your security cushion.
Continuing with our example, knowing the LTV is 80% grants you the "cushion" of
knowing that the property could decline 20% in overall value and yet you would still be
able to sell it and recover money you loaned on it.
This is what got the banks in trouble. When they started doing the no money
down mortgages, they were putting themselves at a 100% LTV. Their only
hope for a "cushion" was based on market appreciation. When the
appreciation stopped, they had no shield in place to protect their loans.
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For some 'real life' perspective, we as a company strive to offer our private lenders deals
with LTV's at absolutely no higher than 80%. With the majority of our deals, you would
have an LTV of 70% (some even as low as 50%!!!). Again, YOU ARE THE BOSS, so you
get to decide whether or not the LTV an investor is offering you meets your personal
criteria.
To reiterate the point above, if you loaned us money on a deal that gave you a 70% LTV,
the market could decline 30% and you would still be in a spot to recoup your original
loan.
For comparisons sake and to give you something to think about, ask
yourself, What happens to your original investment in the stock market if
the market drops 30%? Yikes! We'll get more into that in later sections.
Security Tools
So you've got a deal that has a LTV which meets your standards of comfort. Excellent!
You're not done yet though. You've established some protection for your loan in the form
of an "equity cushion" and insurances; however, your loan still isn't
'secure'.
This section will cover the documents ("security tools") the 3rd party
will put into place in order to "secure" your loan to the physical asset
that is providing collateral.
Out of all the documents the 3rd party will use, there are none more
important to you as the lender, than these two:
1. The Promissory Note (Evidence of the debt)
2. The Recorded Mortgage (Security for the debt)
The Promissory Note
This document is essential since it provides evidence of the debt, also
known as the "IOU on the property." The promissory note is just
that, a "promise". Within the note, the borrower (real estate investor)
acknowledges the debt and promises to repay it under a certain set
of terms. These terms include the interest rate, the length of time he
has to repay the note, the periodic payment, and whether or not it is
fully amortized or paid interest-only. It can contain any other bits of
information you'd like, but the aforementioned items are the bare
essentials.
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This document is NOT filed as public record – you should view it as a personal “IOU” and
keep it in your records.
The Mortgage / Deed of Trust
In sticking with the theme of "tools", this is the document
that would be the equivalent of the sledge hammer. This
piece of paper places a lien against the physical asset.
With the lien in place, it then gives the lender (you) the
right to take possession of the physical asset (the property)
if the borrower ever stops making the loan payments to you.
This paper is notarized and filed as public record. Getting this document on public
record ensures that, should the property ever sell, the lender (you) is the first person to
get money before anyone else.
If you've ever gone through the house selling experience
before, you know how this feels. Before ANY money could go
into your own pocket, you first needed to remove the lien
on your house by paying off the person who owned the
mortgage: the bank. In this transaction, before the investor
can gets any money, they legally need to remove the lien
from the property by putting money into the pocket of the
owner of the mortgage: YOU!
To be clear, when we refer to the term “mortgage”, take note that
some states call the security document a “trust deed” or “deed of
trust.” Whether your state calls it a mortgage or a trust deed, both
documents serve to provide security in the event of a default.
Recordation
Recordation ("recording") is essential because it puts the rest of the world on notice of
your claims against the property. Recording also grants you leverage and certain other
rights over others who may have or gain a claim to the property that is
securing your private loan.
When the documents are completed, you will be provided with a certified
copy of the them as proof that were recorded and stamped with the seal
of the county recorder’s office.
If the investor refuses to record any of the documents
publically, this IS a deal breaker and you should seek out a
different real estate investor.
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The Story of
Bob and Betty
Now that you understand 'how'
banks make their profits and 'what' you need to
do and have in place to mimic their business
model, we want to share a story with you. This is
a story that is true and really happened. For
privacy's sake, we have changed the people's
names, but everything else is derived from actual
events.
We're confident you will be able to relate to Bob
and Betty's story in at least a few different ways.
Knowing you will be able to relate, our goal with this story is to offer you important bits
of knowledge and tips that you will need to consider and apply as you go through your
own personal journey.
The Background
Bob and Betty are just your average middle-aged couple. They have been working for
years and setting money aside to invest for retirement. Thanks to Bob and Betty's hard
work and financial discipline, they had begun to build up a nice little retirement nestegg.
That nest-egg was looking particularly "pretty" during the mid
2000's when the stock market was roaring to high after high
after high. Things seemed to be on cruise control and that "it
is safe to retire" milestone was getting closer and closer by the
month. They were happy, their neighbors were happy, their
financial advisor was really happy... everyone was happy!
All good things must come to an end, however, and what followed is forever indented in
their minds. Bob and Betty were not receiving any sort of fixed rates of return with their
investments based on the stock market. This is a great thing when the stock market is
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rising, but, as Bob and Betty (and many others) quickly learned, when the stock market
gets ugly, those fixed rate of return investments are very desirable.
To no surprise, Bob and Betty's nest-egg was severely damaged during the latter part of
the 2000's. This got them thinking, "Is there no better way? Are my only options really
stocks, bonds, mutual funds, or becoming a landlord?"
In the spirit of being fair and objective, the stock market can give
greater returns than private mortgage lending; however, as the chart
shows below (15 year historic Dow Jones Industrial Average), it can
also take from you. So the key question for Bob and Betty became:
can we afford to get "caught" in a downward trend, that according to
history, WILL happen again?
54.4% LOSS OF VALUE
38.7% LOSS OF VALUE
After considering the stock market does not provide fixed rates of return like private
money loans do, should Bob and Betty now have the opinion that investing in stocks and
mutual funds is unwise and should be completely avoided? Absolutely not!
Instead, due to the inherent risk and unknown future direction of the stock
market, it is wise to plan adding in a new strategy for financial
diversification.
The "Traditional" Choices
Bob and Betty now realized they needed more diversification than what the stock market
and mutual funds offered, so they decided do some research. Their financial advisor
certainly wasn't going to recommend strategies that didn't put cash into his/her pocket;
therefore, this was a journey they needed to take on their own.
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Bob and Betty came across a real estate investment
company, Huber Property Group, LLC (HPG) who told them
about a private mortgage lending strategy. It sounded
interesting to them, but given the hard work and discipline
they had used to build the nest-egg they now had, they
wanted to do some comparisons to other strategies available
and weigh out their choices.
Bob and Betty's things to consider...
Private Mortgage Lending vs. Stock Market
Stocks are a pure equity investment. This means that Bob and Betty are part owners in
the company. There is always the possibility that a company can go bankrupt or go out
of business. Equity holders are the last to get paid, so if there are any issues with
liquidity of a company, equity investors get nothing.
Bob and Betty certainly remembered when the Enron
scandal and the Lehman Brothers bankruptcy was all
over the news.
Private Mortgage Lending with HPG is a pure debt
loan. Bob and Betty liked the aspect of debt compared
to equity because there is collateral. If HPG goes
bankrupt debt holders are paid back before any
equity holders are paid anything.
Stocks provide no fixed yield and generally low, if any, dividends. There are some
attractive looking dividend stocks out there; however, Bob and Betty learned the general
rule of thumb, "the higher the dividend percent, the riskier the company". Add to this the
fact that the company can choose to STOP paying a dividend at any point, that isn't very
comforting.
Private Mortgage Lending provides Bob and Betty with
a fixed rate of return each month (or whenever they
choose to be paid: monthly, quarterly, yearly, etc.). The
terms of the fixed rate are discussed with HPG before
any money changes hands.
Stocks move up and down with the changing of their
value. Being that it is later in life now for Bob and Betty, the scary thing they now needed
to remember is that stock values can go down, depending on whether or not there is
demand for the stock. This of course is something they have no control over. The other
scary part is that everything in the stock market is 100% LTV. Whenever a stock is
purchased, it is at "market value" and therefore 100% LTV.
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Private Mortgage Lending is a secure fixed income loan. With HPG, Bob and Betty will
be able to make a loan secured by collateral that is at a LTV of no more than 70%. If the
value declines, they have a comfortable 30% "equity cushion".
Again, Bob and Betty were not looking to abandon the stock market in its entirety, but
just look for alternate ways to diversify. When comparing stocks to private lending with
HPG, there was a strong case that it was a viable strategy.
The table below summarizes the various aspects Bob and Betty needed to contemplate.
STOCKS
PRIVATE MORTGAGE LENDING
Not Secured
Physical asset (house) secured by 1st lien mortgage
Not Insured
Collateral (house) is fully insured
Invest at market price (LTV = 100% when you buy)
Collateralized below market value
Returns are Not known
Returns are fixed & agreed upon before transaction
Asset = stock certificate
Asset = tangible
Value of stock drops = you lose money, get nothing
Investor stops paying = you assume control of asset
Company goes bankrupt (Lehman Brothers/Enron) =
risk of total loss
Investor goes bankrupt = you assume control of asset
Private Mortgage Lending vs. Bonds & Bank CD's
Bob and Betty knew that traditional wisdom stated
that in your "later years", you should switch to bonds
because they are more conservative. While this is true,
Bob and Betty still wanted a return that was greater
than the rate of inflation (in other words, they didn't
want the value of their money to decrease).
Their research showed...
Bonds are debt investments, so this is a plus for the reasons stated in the previous
section. However, many times the debt has no collateral, so although you are better
protected than a stock owner, you are less protected than a secure debtor.
Private Mortgage Lending loans are debt with collateral.
Bonds offer little if any insurance. These could be backed by the government; however,
when this is the case, it decreases the interest rates to at or below the inflation rate.
Private Mortgage Lending collateral (the house) is fully insured.
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Bob and Betty already liked the fact that with private mortgage lending they would 'have
collateral'; however, while that is certainly important, they also wanted to compare what
kind of interest rates both options offered.
Bonds rates can also have market fluctuation; however, compared to
the stock market, it is generally less volatile. The 'grade' of bond will
determine the interest and risk you receive. If you enter into the arena
of "junk bonds", you can achieve large returns, but at the same time
you are putting yourself at a much larger risk.
Bob and Betty wanted to keep their strategy on the conservative end of the spectrum, so
their main concern was comparing these types of bonds (government backed and high
grade corporate) against private mortgage lending.
HPG was offering them a private mortgage loan opportunity that achieved an 8% per year
fixed rate of return for five years. They used this as their baseline for comparisons sake.
Source: Bloomberg.com
Bob and Betty loved the fact that these were backed by the United States government;
however, the private mortgage loans were also backed by a physical piece of collateral.
But, 1% vs. 8%? The choice seemed rather obvious.
Whether you are looking for bond rates or CD rates, a quick and easy way
to find out this information is to simply type 'government bond rates',
'corporate bond rates' or whichever type you are seeking into Google or
whichever search engine you use.
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Bob and Betty knew that United States government bonds paid pretty low interest, but
what about higher grade corporate bonds? How did these compare to the 8% per year
they were being offered via private mortgage lending?
2.58%
Source: Finance.Yahoo.com
Whether it was a government bond or a corporate bond, neither came close to the private
mortgage lending fixed return of 8%.
How about bank certificates of deposit (CD)? Every time Bob and Betty would walk into
their local bank they were always seeing advertisements for
the CD's being offered. The one component that caught Bob
and Betty's eye was the fact that the CD's are insured (up to
$250,000) by the FDIC. They then did a Google search
online to find what the best rates available are for CD's.
Here is what they found...
Source: BankRate.com
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At this point, Bob and Betty loved the opportunity of not only getting an
8% per year fixed return, but that it was also secured by a physical
asset, and on top of that, the physical asset was fully insured. This
convinced them that diversifying into real estate could indeed provide
an opportunity to build additional wealth.
You may think this is the end of the story for Bob and Betty, and while the story is
getting closer to completion, there is still one extremely important dynamic that Bob and
Betty (and you!) needed to consider: time/hassle factor.
"Real estate investing" is an extremely broad term. While most
classify this with rentals and being a landlord, there are numerous
strategies available. Along with rentals, there is 'flipping' houses,
wholesaling houses, private lending, and a host of others. The
determining factor for you will be "time" and how much "hassle"
you want to put up with.
Time/Hassle Management: Active vs. Passive
Bob and Betty both had full time jobs, so 'flipping' houses or many of the other real
estate strategies wouldn't fit into their normal schedules. Because the opportunity from
HPG had convinced them that real estate was a viable strategy, what about just buying
real estate themselves and becoming landlords?
As had been the case through their entire journey, Bob and
Betty put on their research caps and began to talk with
people and search the internet. They quickly found out that
'just buying real estate themselves' was much easier to say
than do...
Active Real Estate investing requires...
 Spending time researching who is a good real estate agent to work with? Does
the real estate agent understand the needs of an 'investor'? Is the deal "actually"
as good as the real estate agent is presenting, or are they just wanting the
commission?
 Spending time researching which markets make the most sense for investing.
 Spending even MORE time locating a property that can be turned into a rental
property with positive cash flow.
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After finding and purchasing the property...
 Spending time researching and locating who the reputable contractors are (or
spending countless hours trying to fix up the place yourself)
 Spending time and going through the hassle of getting the renovation bids.
 Spending time visiting the property on a consistent basis in order to ensure the
proper work is being completed.
 Spending time dealing with all the landlord
building codes and city inspectors.
After renovating and passing all inspections...
 Spending time and money creating and
distributing marketing materials.
 Spending time meeting with prospective tenants
at the property.
 Spending time running background and credit
checks on possible tenants.
After marketing, screening, and putting a tenant into the property...
 Spending time managing the property (including possible phone calls at 4 am)
 Spending time chasing down monthly payments
 Spending time heading to the courthouse for possible evictions
Passive Real Estate investing via Private Mortgage
Lending saves the time and hassle by avoiding all of the
above, and allows for the professional real estate investor
to deal with it.
Bob and Betty had neither the time nor desire to take all
those tasks upon themselves, so they decided the passive
form of real estate investing was the more appropriate
wealth building strategy for them.
Finding Comfort Level
This pointed them to one final area that needed to be addressed before
they could begin seeking out real estate investors: their comfort level.
Everyone has different levels of comfort, so for Bob and Betty this was
just a matter of personal preference. After talking with others, they
discovered that within the world of private lending, the money can be
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loaned at different times during the process. Depending on 'when' the money is loaned
within the real estate investor's process establishes the type of risk being taken on.
The "When" Question
To reiterate, the key factor in this scenario is the answer
to the question: "when" is the money being loaned to the
investor within the overall process?
The timing of "when" the money is loaned is going to dictate the type of potential phone
calls you get from that investor. For instance let's say Bob and Betty loan money to
Investor Headache before the property has been bought, fixed and sold, compared to
Huber Property Group, LLC (HPG) who they have loaned money to after the property has
been bought, fixed, and sold. Bob and Betty had to now ask themselves what set of
phone calls they would rather potentially receive:
Phone Calls...
 Investor Headache - I underestimated the renovation budget, I need more money.
 HPG - no phone call. Renovations already completed.
 Investor Headache - I ran into an unknown surprise
after tearing open a wall, I need more money.
 HPG - no phone call. All surprises already dealt
with and paid for.
 Investor Headache - I overestimated the value of the
finished home. (translation: I paid too much for the
home. I need to raise the price and "HOPE" I can get it sold/rented.)
 HPG - no phone call. We already know the value since it has already been
sold*/rented.
 Investor Headache - I can't get the home sold/rented. Because I overvalued the
house, the time it has taken to try and sell/rent has been much longer than I
thought, so now my "cushion funds" to pay you are all spent. You can have the home
back since you have 1st lien on it. (translation: thanks for putting up with all the
stress I've caused and taking all the risk with your money. You can have back the
house that is not worth all the money I put into it.)
 HPG - to what address would you like your monthly check sent?
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The investor's business model will determine 'when' your loan will
be needed, and as Bob and Betty learned, figuring this out upfront
is a crucial step in order to assess your personal comfort level with
the potential risks involved.
For Bob and Betty, they wanted the maximum amount of comfort, even if that meant
slightly lesser interest on their loan. With this being the case, they determined they
wanted to go with Huber Property Group's business model which was to make the loan
"after" all the risky process steps (fixing and selling/renting) were taken care of.
Screening the Investor
While Bob and Betty liked the business model of Huber Property
Group (HPG) and the comfort it provided, this was only the first
half of the process. They now needed to screen HPG and ensure
they were a company they could trust making a loan to.
Bob and Betty's primary concern was did HPG have any real estate
investing experience? This lead to the most important question in
the screening process...
Have you done this before?
It undoubtedly is a very basic and simple question, but as Bob and Betty knew (and so
should you!), it leads to the remainder of their screening.
HPG claimed to have done multiple projects before, so that lead further to the next round
of questions.
It is certainly respectable for an investor to be upfront and honest and tell
you if it is their first project; however, the risk level on your end
dramatically increases. While we won't say you should say 'no' to the
investor, we do want you to understand you are unnecessarily increasing
risk levels.
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Because Bob and Betty were told by HPG they had done previous projects, their next
question in the screening process...
Do you have examples of previous projects?
As any investor should be, HPG was happy they asked this question.
This allowed HPG to show and demonstrate to Bob and Betty that
they were not "rookies" in the business.
HPG presented Bob and Betty with a packet that explained their
program, how it works, and previous projects completed.
Inside the packet in HPG's Case Study section, they found details about previous
projects that included photos of work HPG has done...
1020 Kusterer Ave
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2739 Brooklyn Ave
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Any real estate investor who has actually done projects before will have
some sort of marketing geared around it. Remember, a reputable investor
wants you to trust them with your money - what better way to earn this
trust than to show you their previous work?
Bob and Betty were impressed by HPG's previous projects and now felt reassured that
they actually knew what they were doing. Despite this, there were still a couple more
questions that needed to be asked.
Next up in their screening process...
Can you provide us with some referral contact information?
Not only did Bob and Betty want to know that they
would be putting their money with an experienced
investor, they also wanted to be sure they would be
'treated right' after the money had exchanged hands.
In order to do this, Bob and Betty requested referral
information for the previous/current people who had loaned HPG money. They then got
in contact with these people and asked the following questions:
1) Has HPG been professional in their handling of the
loan process and addressing all of your questions and
concerns?
2) Are they prompt? When an email or phone call is
made, how long do you normally have to wait to get a
response back?
3) Do payments show up on time? Have you ever had any
issues with payments? If so, how were they resolved?
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The referral contacts answered the questions and highly recommended HPG, so Bob and
Betty once again felt more at ease.
Receiving 3rd party perspective from previous and/or current people who
have loaned money is simple. How simple? A phone number. An email
address. After you have this information, you can now go straight to the
source. It's also a great way to see if there are any warning
signs. If the investor proclaims to have done multiple projects and has
many people in their loan program, yet refuses to give you any sort of
contact information, that should spark some uncertainty on your part.
The MUST-ASK Question
This question gets its own section due to its importance. At the end of the day, this
question is the one that is the "make-or-break" for the deal.
We've mentioned it once already in a previous section; however, it is a point that we want
to reiterate. What is this question? Let's jump back into the story of Bob and Betty...
Because Bob and Betty had done their research prior to even screening HPG, they knew
this next question was of ultimate importance...
Are all appropriate documents recorded publically?
HPG assured them that all their documents were indeed notarized and recorded with the
local county. Bob and Betty knew that without this crucial step, their loan would have all
of a sudden been on very thin ice.
With this final question out of the way, they were now ready to move onto their final
analysis.
Having documents recorded is crucial in both directions. Meaning, if an investor
impresses you in every way possible, but won't be recording documents, then we would
advise against working with them. On the other hand, if the investor doesn't have as
much experience and past projects in their portfolio, but will be
publically recording all documents, then go for it. Remember, the
recording allows you to get the physical asset into your possession
should a worst case scenario happen. This then allows you to
liquidate the property and get your cash back.
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Final Comfort Analysis
After going through the screening process, it all boiled down to a simple question that
Bob and Betty had to ask themselves...
How comfortable do we feel with this investor/company?
Bob and Betty considered...
1) HPG was not a rookie. They have done multiple projects and have a system that
fits their comfort level (only needing the loan "after" the house has been bought
and fixed up).
2) HPG could provide pictures and information about their past projects. They knew
and understood that it was one thing for someone to 'say' they've done projects
before, but a whole different thing to 'show' past projects.
3) They spoke with the referrals from HPG and they all had good things to say. HPG
was professional, prompt and payments showed up on time.
4) Most importantly, HPG ensured all appropriate documentation was recorded
publically.
Factoring in all the variables along with their screening process, Bob and Betty decided
they wanted to become a part of HPG's private lending opportunity program.
Everyone's comfort level is different, so there is no "golden goose" solution in
terms of the questions you should ask and screening you should do. If you are
dealing with a family member, then it would be easier to feel comfortable
compared with a stranger. At the end of the day, the best way to look at it is:
the more screening you do, the higher the comfort level.
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Bob and Betty's Results
Bob and Betty decided they wanted to diversify $75,000 of their funds into real estate
with HPG.
In order to ensure the best possible loan-to-value ratios, HPG divided the amount into
two separate loans.
Loan #1 Details
Loan Amount: $35,000
Loan-to-Value (LTV): 61%
Interest Rate: 8% simple (interest only
payment)
Collateral*: Mortgage Deed (lien)
Lien Position: 1st
Loan Length: 60 months (5 years)
*Collateral Details:
 3 beds, 1 bathroom, 1,040 square
feet, quiet street
 Property sold for $57,500 on land
contract. Purchaser put down $5,000
upfront.
 LTV calculation: $35,000 / $57,500 =
61%
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Loan #2 Details
Loan Amount: $40,000
Loan-to-Value (LTV): 55.6%
Interest Rate: 8% simple (interest only payment)
Collateral*: Mortgage Deed (lien)
Lien Position: 1st
Loan Length: 60 months (5 years)
*Collateral Details:
 3 beds, 1.5 bathrooms, 1,400 square feet, 1
car garage, finished basment
 Property sold for $72,000 on land contract.
Purchaser put down $5,000 upfront.
 LTV calculation: $40,000 / $72,000 = 55.6%
Overall Loan Results
Bob and Betty signed up for direct deposit with HPG, so it truly became a hassle-free way
to deal with their money. They didn't even need to walk to their mailbox to pick up a
check, it was electronically deposited for them!
Bob and Betty's numbers...
 $75,000 at 8% interest gave them $6,000 per year in fixed income.
 $6,000 per year provided them with $500 positive cash

flow each month.
o No headaches. No "being-a-landlord". No chasing
payments.
Because the loan and interest is fixed, Bob and Betty had
no worries of...
o Sudden ups and downs of the stock market.
o Knowing they were losing money due to inflation.
o Ending up with nothing. Remember, in a worst
case scenario, Bob and Betty would take control
over the physical assets (the properties shown
above).
Bob and Betty found great uses for that predictable $500 per month that arrived, and
are now able to brag to their friends and family that they are "real estate investors", even
though they never lift a hammer or talk to a tenant!
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Conclusion
We've gone over some of the greatest secrets, strategies, tools and techniques for making
substantially higher returns than what you can usually earn in traditional bank
certificates of deposit, money market or related investments.
Believe it or not, you now belong to a very small group of the population who is
aware of and understands this strategy to diversify your money.
While private mortgage investing should not be the "only" strategy you use, it is an
excellent way to diversify some of your hard earned funds away from the unpredictability
of the stock market and pitiful rates of returns from bonds.
We've shown you things to consider, things to look out for, things to be sure that you
include and more. Please use the tools, strategies and techniques that have been shared
with you in these pages to change your life for the better, and to break free of the
confines of traditional bank investing.
Remember, when you are keeping your money in the bank, you are simply loaning
money to the bank. All your bank then does is turn around and loan it out at much
higher rates to other people. You know 'how' they do it, and 'why' they do it, so cut out
the middleman and become your own bank!
You are now equipped with everything you need to take action and start investing as if
YOU were the bank. Private mortgage lending is liberating and is one of the best ways
available to really beat the market in a safe, secured and insured way.
We wish you the best of luck in your new private lending journey, and we hope that you
will feel free to contact us and ask any questions that you have along the way. We are
here to answer your questions, to guide you and to lend a helping hand to set you on
your path to wealth through private lending in any way that we can.
We as a company always have available lending opportunities, so if you don't have any
questions about lending in general, but would like to work with us, then by all means,
contact us! We'd love to get you involved in our private lending opportunity program.
Huber Property Group, LLC
Office: 616.730.3355
eMail: [email protected]
Website: HuberPropertyGroup.com/contact-us
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