Key Terms Every Private Lender Should Understand

Key Terms Every Private Lender Should Understand

Stepping into the world of private lending for real estate is an exciting and potentially lucrative endeavor—but like any investment strategy, it’s crucial to understand the terminology involved. Whether you're lending from your personal funds or through a self-directed IRA, having a strong grasp of the following key terms will help you make informed and confident decisions.

1. Promissory Note

A promissory note is a legally binding document in which the borrower agrees to repay the lender under specific terms—typically including the loan amount, interest rate, payment schedule, and maturity date.

2. Mortgage or Deed of Trust

This is the security instrument that ties the loan to the property. It ensures that if the borrower defaults, the lender can pursue foreclosure to recover the investment. Depending on your state, this document may be called a mortgage or deed of trust.

3. Lien Position

This term refers to the order of claims against a property. A first-position lien gets paid before all others in case of foreclosure. A second-position lien is riskier but may yield higher returns. Always clarify your lien position before funding a loan.

4. Loan-to-Value (LTV)

LTV is a metric used to assess risk. It’s the ratio between the loan amount and the property's appraised value. A lower LTV generally means a safer investment.

5. Default Clause

This outlines what happens if the borrower fails to make payments, including late fees, legal remedies, and possible interest rate increases. It’s your protection plan.

Conclusion

Understanding these key terms is essential to becoming a successful private lender. Armed with this knowledge, you can enter deals with confidence, knowing you’re building passive income backed by tangible real estate assets.

Would you like to know more about investing passively from your IRA?   Contact Alex at [email protected] or call 501-580-2598

What we’re up to…

The Importance of Continuing Education in Real Estate

Ongoing education is essential to building a successful real estate business—or any business, for that matter. This past weekend, I had the privilege of attending the Niche Mastermind event in Kansas City, led by Michael Franke. It was an incredible two-day experience filled with insight, collaboration, and community.

Over 50 real estate investors from across the country came together, each one focused on helping homeowners facing foreclosure. In total, 25 states were represented, including Arkansas. I was proud to attend alongside two fellow investors from Jonesboro, AR, each of us committed to making a positive impact in our communities.

Events like this not only deepen our knowledge but also expand our network of like-minded professionals. When we learn from others who are actively solving the same challenges in different markets, we grow faster and serve better.

I walked away inspired, better equipped, and even more passionate about continuing the mission: helping families avoid foreclosure and find better financial solutions.

Would you like to know more about how to grow your retirement nest egg? Contact Alex at [email protected] or call 501-580-2598