I often get this question from new lenders/investors, people that are learning about the private mortgage world, or from anyone that hears about how I help regular every day people earn 8% to 18% returns on their money. I received this question yesterday via email from one of our newer lender/investors: WHY would this borrower be willing to pay 12.35% money, plus fees/ legal/ etc, when they have so much equity and income? One would ‘assume’ you should be able to ‘convince’, one of the banks to get you a loan at less than half the rate?! These were the same questions I had when I was learning about private financing. There are many reasons, but here are a couple. This was my response to his inquiry: Good questions. Once a borrower misses payments on his current mortgage, there are few (if any) traditional lenders that will lend to the client. Since he missed some payments, and the lender asked to be paid out, any other bank will request the current mortgage statement and see the arrears and will "pass" on the deal. This is one of the many reasons why we get to do what we do and earn excellent returns. Another common situation is if a borrower has $25k owing in personal taxes. No bank will refinance you if you have personal taxes owing. Even if you use the new mortgage proceeds to pay back taxes! So we will come in, fund a new mortgage to pay off taxes that are owed, and the borrower will refinance with a bank in 3 to 8 months and pay us out. The reason people need private mortgages is sometimes they have no other choice. What other questions do you have about why someone would be willing to pay 10%+ on a private mortgage?

When I was growing up, my parents had a few rental properties. We would often spend weekends, or evenings cleaning up after tenants, painting fences, cleaning gutters, building a new patio etc. I was interested in Real Estate and started to read some books like "Rich Dad, Poor Dad". As I got older, I became more curious about real estate and the benefits of it. I read other classics like "Nothing Down" by Robert Allen and was able to purchase my first rental property when I was 19. In my early 20's, I was enrolled in the Bachelor of Commerce program at the University of Calgary. As any typical poor student, I was seeking additional income while attending school and during the summer. I landed a labour job for the summer and intended to use this time (mostly cutting grass) to continue to learn as much as I could about real estate and the various ways to make money. Since I had already experienced some of the ups and downs (mostly property management hassles, clogged toilets, lost keys, non-payment of rent etc) I was looking at ways of making money in Real Estate despite not really having any money to invest! While I was mowing laws for the summer, I listed to a Real Estate Course that my parents had purchased in the mid 90s. Yes, that is right, cassette tapes! I listened for 4 to 6 hours per day (as much as my head could handle) and tried to absorb as much information as I possibly could. I learned about wholesaling, seller financing, tax liens, foreclosure auctions, Fix and Flips, Lease Options, Sandwich Lease options, Property Management, Creative Financing and all sorts of other topics. But one of the ones that intrigued me the most was something called Private Lending, or Private Mortgage Lending. The idea presented was that individuals, regular every day people, could take their own capital and lend it to other people and earn between 8% and 18%+ on their money. They could literally become the "Bank", and receive monthly payments from the borrower. Most importantly, this Private Loan, was secured in 1st or 2nd position on the title! The loan was secured by the real estate!

For our purposes, our discussion will be mostly about "private lending". This is money that is loaned from an individual or family. The funds could come from their personal savings, their various RRSP, LIRA, 401K, Tax Free Savings Account, their corporation or LLC or from their family trust. We will use the term "Hard Money" lending for groups, funds or larger corporations that lend out their funds as their primary line of business. Where do you like to lend your money from? Personally, I lend from my corp, my registered accounts and my own personal money.