How to loan someone money?

[GetRichODT]

I've accumulated extra funds and am looking at loaning some money out. A couple of questions for the group that I'm currently researching:

1) How do you compound the interest (daily, monthly)?

2) When they make the payment, how do you adjust the principal paid vs interest and set up the new payment for the next month?

Any recommended links to use over the life of the loan (likely to be about 10 years)?

Looking for any insights from those here that may have done this to help their gold go to work for you.

 

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[SteveO]

Google "loan documents" for some sample ideas. Also search for amortization schedules or tables. They are all over the internet.

Have you considered investing with companies that do hard money loans or note buying? There is a very large world out there that you should spend some time researching.

 

[GetRichODT]

Google "loan documents" for some sample ideas. Also search for amortization schedules or tables. They are all over the internet.

Have you considered investing with companies that do hard money loans or note buying? There is a very large world out there that you should spend some time researching.

Yes I'm doing that as well. This forum is just one part of my research. Thanks for the suggestions! I'll continue to research there.

 

[Late Bloomer]

1) How do you compound the interest (daily, monthly)?

That's for you to choose. You can decide what you're willing to offer, and what you're willing to accept. Within that range, you can negotiate if you want, or just offer a single "take it or leave it" offer.

2) When they make the payment, how do you adjust the principal paid vs interest and set up the new payment for the next month?

For many loans the monthly payment amount is fixed. The first payment is all interest, the last payment is all principal. In between, more and more of each month's payments go to the principal over time. There are charts to calculate this and most spreadsheet programs let you put in the numbers you know, and calculate the rest automatically.

If the loan is connected to real estate, talk to a real estate attorney. Otherwise, talk to a general attorney about what could go in your contracts. You don't have to accept all their advice to wind up with an over zealous contract that's too long and scares people away. But you can choose that your documents will include some important points they mention. And you should get familiar with lending and collection laws that apply in your area.

Since the logistics are all new to you, I agree with Steve that it might be a great start for you to you pool your money with someone else who already has a lending business. Someone who already knows how to find good borrowers, make good deals, handle the paperwork, get taxes done right... all they need is your capital. If you don't know anyone like this, why not schedule a meeting with a local credit union or bank manager and ask if they know of any local investor meetups. (While you're at it, the bank might offer you a chance to put away some money with them for a lot of security and very little return. Might as well collect the documents to see how it works with them. You can always say "no thanks" after you sleep on it.)

 

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[SteveO]

I should say BRAVO for saving your money. I'm sure that you are looking for the largest return you can get. Lenders of money do not usually want to only make interest, they usually want more. Points and fees are common. Most lenders seem to want early payouts in order to maximize returns through other fees. You will make the most on one to two year projects.

Are you looking at first loans, second positions? Do you want securitized loans? If securitized, do you want to acquire assets if the terms are not met?

As far as the interest calculations, @Late Bloomer says it well.

There are so many rules and laws pertaining to lending. Especially if the loans are going to homeowners. Less rules when lending to investors. That is where all the money is if you know the business.

 

[Mckenzie]

Since the logistics are all new to you, I agree with Steve that it might be a great start for you to you pool your money with someone else who already has a lending business. Someone who already knows how to find good borrowers, make good deals, handle the paperwork, get taxes done right... all they need is your capital. If you don't know anyone like this, why not schedule a meeting with a local credit union or bank manager and ask if they know of any local investor meetups. (While you're at it, the bank might offer you a chance to put away some money with them for a lot of security and very little return. Might as well collect the documents to see how it works with them. You can always say "no thanks" after you sleep on it.)

Thanks Lage Bloomer. This is the exact thinking that been floating in my head for the past many days, but I wasn’t sure where to start. Last year my loan broker offered me to do this, but I was afraid that it wasn’t safe and legal, so I didn’t do it. Thanks