How the Private Lending Program Works

The short version: You lend to an established residential real estate developer at a fixed rate for two to five years. A certified Deed of Trust and/or Mortgage Note on a specific residential property secures the loan. Funds move through third party escrow, and you choose monthly interest or quarterly compounding.

Who is borrowing

It is worth being specific about the counterparty, because in private lending the borrower is most of what you are evaluating.

The borrower is an established residential real estate developer with more than twenty years of operating history. Like any developer, it needs capital to acquire land, build and hold property, and it raises part of that capital from private individuals, securing each loan against real property. That is what the Private Lending program is.

Key Financial Group of Florida, Inc. is an authorized advisor for the program in Florida. In a consultation we walk through the developer's background in detail, and you should expect to understand it fully before committing anything.

The structure, step by step

You agree a rate and a term

Terms run from two to five years, at a fixed rate agreed at the outset. The minimum loan is twenty five thousand dollars. Current terms and rates are available on request rather than published.

A property is pledged against your loan

A certified Deed of Trust and/or Mortgage Note is recorded against a specific residential property owned by the developer. This is a recorded legal instrument, not a general assurance, and it establishes your claim against that named property.

If that property sells, the note moves

Because the borrower is an active developer, its properties are sold in the ordinary course of business. When the property securing your note is sold, the note is transferred to another property.

This matters. Your security does not evaporate when a house sells. It follows your loan.

Funds move through third party escrow

Money does not pass directly to the developer. It moves through independent escrow and title companies. We look at why that step matters in the role of third party escrow.

You choose how interest reaches you

Either paid to you monthly, which suits people using it as income, or deferred and compounded quarterly across the term, which suits people who do not need it yet. We compare the two in monthly interest vs compounding.

Interest is paid from the whole business

This is a point people often miss. Interest is paid from all of the developer's income sources, not only from the property securing your particular note, and payment is backed by a promissory note.

So the collateral property is your security, and the developer's overall operations are the source of the payments. Two different things doing two different jobs.

Lien position by loan size

The size of a loan generally determines where it sits in the repayment order.

Loans under one hundred thousand dollars are typically secured as secondary liens. Loans from one hundred thousand to two hundred thousand dollars are typically primary with one joint lien. Loans above two hundred thousand dollars are typically a sole primary lien.

None of these is inherently wrong. They are different positions with different characteristics, and knowing which applies to your amount is a reasonable thing to establish before committing. See understanding lien position.

Using retirement money

Existing IRAs and old employer 401(k) accounts can be used to fund a loan. That involves particular custodial arrangements and paperwork, and it is worth walking through carefully rather than assuming it works like an ordinary transfer. We cover it in can you use your IRA or old 401(k).

Leaving before the term ends

Early withdrawal is discouraged, and that is not a formality. The whole arrangement is built on the money staying in place for the agreed period.

In a genuine hardship, the note can typically be liquidated at a market discount, which means receiving less than you lent.

Read that sentence twice before committing anything. It is the clearest reason to lend only money you are confident you will not need during the term.

The risks, stated plainly

• Your funds are not liquid during the term.
• This is not a bank product and is not FDIC insured.
• Real estate values can change.
• Interest rates can change at renewal.
• Past performance does not indicate future results.

How we approach it

We are an insurance and retirement advisory practice whose priority is preservation of principal. Most of what we arrange is insured and guaranteed: certificates of deposit, savings and money market accounts, and fixed annuities.

Private lending sits outside that, and we present it that way. When it comes up, it is generally as a portion of a plan for people who have already covered their liquid and insured needs, and who understand exactly what they are taking on.

If you would like the structure explained with the risks alongside it, schedule a free consultation. There is no obligation and we will not rush you.

This article is for general education and is not financial, tax, or legal advice. Please speak with a licensed professional about your situation.