What is Private Money?

What is Private Money?
Video Transcription

Bob: Hey, guys, it’s [Bob 00:00:02]. So [Michael 00:00:04] and I just had an appointment with a potential client, a potential seller, for her property. And in the conversations, we were talking about the offer price for her house, and I told her that we buy houses with cash, we pay for them in the as-is condition that they’re in. And she asked me, she said, “When you pay for them with cash, what does that mean?” And I said, “You know what? That’s a great question. I don’t just open my wallet and whip out a wad of cash and pay you for your house. We actually use private money, which is treated like cash because we’re doing a loan from a private individual, in many cases, friends that we’ve … people that we’ve become friends with, and they loan us the money for the purchase and the renovation of the house. And in return, we make an interest-only payment to those individuals for the use of the money for the term that we use to renovate the house.”

So we spend thousands and thousands, tens of thousands of dollars every year in private loan payments back to our lenders. And today, I had the privilege of having a meeting with one of those lenders to our business. In fact, they’re partners of ours that we met probably 10 years ago. They were buying some rental properties, and my wife was their real estate agent. They asked for some help on some of those rental properties, and I was able to help them out. And today, they’re like some of my best friends in the whole world. I mean, these people brought me a gift from their travels, and if you look at my Facebook posts, you’ll probably see that. But at any rate, I’ve known them for about 10 years now. We ride bikes together, we hang out together, we eat together. Today, we spent two hours together. We didn’t talk too much business. We didn’t talk about loan payments, we didn’t talk about loans. We talked about our families, our travels, our lives, and we’ve built relationships.

So I’m fortunate, I’m grateful, that right now I have five or six individuals or partners that loan us money to renovate our properties, and I’m happy to make those payments to them every month. And I’m happy to see their returns at the end of the year, the thousands of dollars that they make in return for loaning us thousands and thousands of dollars that makes it possible for us to go out and buy somebody’s house, somebody who might be in trouble, somebody who really needs to move for some particular reason. Maybe they have inherited a house, or maybe … well, I don’t want to give you too many details about this person, but maybe they just are done with their property and they need to move on, and they don’t have the money to do the renovations.

Well, that money comes in the form of cash. We’re cash house buyers. We’re direct cash house buyers. That’s what we do. But again, we don’t open our wallet. We go to our friends and we say, “Hey, we’ve got this opportunity. We have this deal, and this is how much money the opportunity is going to require, and this is how long we’re going to use the money. And in return, you can expect these payments. And in return, at the end, you can expect this amount of money in return.”

So that’s private money. Just wanted to explain it and fill you in on it. Thought it was something that’s relevant. You know, a lot of people hear “cash house buyers” or they see commercials on TV, and they’re wondering, what the heck does that really mean? What does it mean? Well, in our case, we’re borrowing cash from private individuals, and we’re paying them handsome returns for that cash, and we’re solving someone’s problem. So that’s how it works. Just thought I’d fill you in. All right, everybody, take care.

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