Why do private lenders matter?

The year was 1996 and I was sitting across the desk from the man that would not only teach me about private lending but would become a mentor, investor and friend.  The question was asked “do you know what a mortgage is?” to which I nervously replied “no”.  I had heard the word before but at the ripe age of 18 years old I had not yet had a mortgage nor did I understand what they were or why they were needed.  The man went on to share with me that he and his friends were providing money to people that were not able to get the money they wanted from a bank for a variety of reasons.  These people would provide a piece of real estate as security and they would borrow money at interest rates that were 1.0% per month to 2.75% per month plus fees.  He went on to share with me that these opportunities were considered high risk and were generally less than 6 months in length.  From from time to time he would have to foreclose (another foreign term to me at the time) but because he was always lending less than what a property was worth he had never lost his money or the money of his friends. Continue reading “Why do private lenders matter?”