Common Private Money Lending Terms

If you’re exploring the opportunities afforded by rehab loans, you’re probably coming across a lot of terms and phrases that you might not be completely clear on. Private money loans are surrounded by a great deal of terminology that can be confusing to first time house flippers but which is important to have a clear understanding of in order to move forward effectively with your property investment. Here’s a quick overview of some of the most important terms you’ll come across while exploring the possibilities of house flipping.

Lien – A lien is simply a claim against real property. The most common type of lien that you will come across is a deed of trust.

Deed of Trust – When you take out a private money loan, you will hand over a deed of trust for the property in exchange for the loan that you receive. The deed of trust will stay in the hands of your lender, giving them legal ownership of your property until your loan is repaid in full including interest, at which point the deed is released into your name.

Loan-to-Value Ratio (L.T.V.) – The loan-to-value ratio is a calculation that is used to help determine whether or not a private money loan is a sound investment for a given property. The loan-to-value ratio expresses the value of the private money loan against the value of the property that is being purchased. Some private money lenders will adjust this ratio by determining the potential value of the property once updates have been made.

Trust Deed Investor – This is another name for the lender who will provide you with your private money loan. Trust deed investors earn their profits by collecting interest on your loan in addition to the principle that they invest upfront. House flippers benefit from trust deed investment by obtaining the private money that they need quickly and reliably, helping them maximize their chances of obtaining significant ROI.

ROI – ROI is simply an abbreviation of the phrase “return on investment.” House flipping presents opportunities for high return on investment, meaning that the amount that you sell your investment property for in the end could be significantly higher than what you originally purchased the property for.