There are some general terms every private note investor should understand before they being their journey. Here are some private lending the basics-terms:
Loan: A loan is the lending of money between one or more individuals or organizations to other individuals or organizations. The recipient incurs a debt and is usually liable to pay interest on that debt until it is repaid in full. “In full” means that they will pay the lender back the principal amount, or the amount of the loan, plus interest.
Valuation: The current worth of a property.
Mortgage/Deed of Trust: A legal document that secures a property and legally puts it in your borrower’s name (trustee) and your name (lender).
Title Company: A vital third party that ensures a property is legally transferred and your loan is well-protected.
Loan Amount: The total amount the borrower is seeking for their project. This might encompass the property purchase price, renovation costs, and/or closing fees.
Lien: When you secure a loan on a property, you will be given a lien position. This is essentially your place in line to be paid back. So, you always want to try and be in first lien position
Payment Date: This is when the monthly/quarterly payments from the borrower are due.
Interest Rate: Your annual return on a loan. Your loan agreement should specify how often interest is to be paid (typically monthly).
Term: The length of the loan. Private notes can range from a month to many years. It just depends on your comfort level and what you’re looking for.
Learn more about returns and security from private notes in this blog addition.
Private Lending the Basics-Terms