How I Used Hard Money Lending to Make $3,000/day on One Real Estate Investment…

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Summary

  • I made an investment that earns me $3,300 per day in profit from a deal involving a $2.5 million note.
  • I engage in hard money lending because it lets me control deal structure, creating both the upside and the downside, which is crucial to managing risk.
  • Getting rich isn't about hitting the upside like buying lottery tickets; it's about minimizing mistakes and letting time work for you.
  • In the deal, I lent $2.5 million to buyers purchasing a 334-unit building from foreclosure in Memphis.
  • To protect my investment, the buyers, each with a net worth over $2.5 million, personally guaranteed the loan.
  • The building was valued between $5 million and $5.6 million, and there was earnest money of $300k, confirming buyer commitment.
  • To secure repayment, we ensured I was first in line on the title, minimizing the risk of other liens.
  • The payment terms were 4% per month, totaling $100,000 per month, with a two-month minimum carry guaranteeing me at least $200,000.
  • If the deal took over four months, the interest rate would double to reflect the increased risk.
  • A mistake by our lawyers resulted in a lower repayment amount, but the buyers pointed it out, demonstrating the value of trust in business relationships.
  • The final repayment amount was about $350,000 plus the initial $2.5 million.
  • Trust is a crucial currency in business, and the experience reinforced the importance of trustworthy partners in business.
  • I have to pay a 50% tax rate on the income from this deal, which impacts the net gain, highlighting the need for high returns in private lending.
  • My personal takeaways include the value of trust, the significance of understanding deal structures, and the need for ethical partners.
  • I focus on sharing knowledge to help others succeed without selling anything on my channel.

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How To Take Action

A good way of doing better business is to focus on deals where you can control the structure. Here’s how:

  1. When lending money, always set terms that protect your investment. The key is to control both the upside and the downside.
  2. Make sure your borrowers have strong guarantees. If they’re investing in something, they should have the means to back it up, like having a net worth that matches or exceeds the loan.
  3. Confirm the value of what they’re buying. If there’s a solid offer on the table, that’s a good sign. Better if there’s earnest money involved. It shows commitment.
  4. Get on the title. Be first in line so you’re not stuck behind other debts.
  5. Set clear payment terms. Know how much you’ll earn monthly and have a minimum interest period. If the deal takes longer, increase the rate to match the risk.
  6. Build trust. Trustworthy partners point out mistakes, even if it costs them. They think long-term.
  7. Tax plays a part. Remember, high taxes on income mean you need high returns to make it worthwhile.

Lastly, share your knowledge. You learn by teaching, and it helps others without costing you much. You don’t need to sell anything to do this, just help people win, and they might become partners you can trust with bigger deals in the future.

Quotes

"Getting rich is about really just making fewer mistakes and letting time become an ally rather than a liability"

– Alex Hormozi

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"Trust is the most valuable thing that you can have"

– Alex Hormozi

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"It's not about trying to hit their upside, it's about understanding downside risk"

– Alex Hormozi

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"You only get one name, you only get one reputation"

– Alex Hormozi

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"Trust is…worth their weight in gold"

– Alex Hormozi

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