The real estate community is filled with so many tactics and strategies which buyers and sellers used to obtain a loan. One of these is the Gator Lending method, designed more than a decade ago by another real estate entrepreneur: Pace Morby.
The gator lending method is a safe alternative to traditional banking and loan methods, which is useful for small businesses and people who are just getting into the world of real estate. In this post, we’re going to chat about everything you need to know about gator lending, from its basics and benefits to its legality.
What is Gator Lending or the “Gator Lending Method”?
Gator lending is a financial strategy created by entrepreneur Pace Morby to build and strengthen community relationships within the real estate sector. It offers short-term financing to help real estate investors secure quick deals through transactional funding.
Rather than using traditional bank loans, gator lenders provide the funds needed for upfront costs like earnest money, down payments, or property renovations. These funds typically come from credit lines or lending capital, not from direct cash exchanges. So, what exactly is this strategy any different from traditional lending methods?
- No Long-Term Contracts: Unlike typical loans, Gator Lending doesn’t tie borrowers to years of fixed payments.
- No Fixed Interest Rates: Instead of paying interest over time, the focus is on sharing profits once the property transaction concludes. Yet, this doesn’t mean deals can’t have interest rates, either low or high, it just means they are flexible.
- Flexible Repayment Schedules: Repayments depend on the success of the deal, meaning lenders are repaid only after the investor profits from the property sale.
Gator lenders then recover what they invested through the repayments by buyers in a quick and efficient manner. That way, their excess capital keeps circulating, which allows investors to seize opportunities without locking their money into long-term loans.
In a way, it’s not too different from other ways of passive income for people with excess capital. Naturally, it’s not the only way you can earn money with passive incomes.
How Does Gator Lending Exactly Work?
To make the concept easier to understand, let’s break it down with a very simple example:
- Let’s say Investor X finds a property they can renovate for $30,000 but needs $300,000 to purchase it.
- Investor X reaches out to Seller Z, which tells him he will require an earnest payment, or good faith payment, of $50,000 to proceed with the deal.
- However, Investor X is currently illiquid. In other words, he doesn’t have the money to hand down the earnest payment right off the bat.
- Investor Y, the gator lender in this example, provides Investor X with the $70,000 he requires for the upfront payment and the renovations.
- Investor X purchases the property and closes the deal. In due time, he pays back the loan to Y with all stipulations agreed in the deal.
This way, Investor Y used their excess capital to help another member of the real estate community purchase a property through a lightning-fast loan, instead of a traditional loan that would take months or years to pay off.
Is Gator Lending Legit?
Naturally, as it happens with any large community, particularly one that works heavily through social media, concerns about the legitimacy of Gator Lending are always going to arise. The short answer is: yes, Gator Lending is legit. Gator lending is not a scam, because both transactional funding and earnest payments are legal.
It’s important to note that while earnest payments are legal, they are “not necessary”, as seen in some real estate practices, according to the California Association of Realtors’ (CAR’s). It’s just become a norm among real estate buyers and sellers across the United States.
At the end of the day, it’s a sales tactic. So, if you are lending or receiving money for an upfront payment, you are not necessarily engaging in or falling victim to a scam. Still, we do recommend keeping this in mind:
- The Importance of Due Diligence: Research before entering any Gator Lending deal. This means investigating the people you’re working with and verifying the details of the transaction. To minimize risks, you should always involve trusted real estate attorneys and title companies who can help ensure the transaction is legitimate.
- Seek Transparent Companies: If you are a person looking for a gator lender or real estate partnership, we recommend using some trusted companies, which have favorable reviews, such as Duckfund, BiggerPockets and Building Bits.
Also, if you are willing to earn extra money, you can check some side jobs real estate agents can do.
How to Become a Gator Lender: Requirements
Becoming a successful Gator Lender requires a combination of resources, agility, and industry connections. To become one, you don’t have to fulfill the next requirements, but would certainly help cement your path towards becoming a gator lender:
- Access to Investment Capital: One of the most important requirements for a Gator Lender is having readily available capital, whether through personal savings, retirement funds, or home equity lines of credit. Lenders need a reliable source of funding to quickly jump on investment opportunities.
- Agility in Decision-Making: Gator Lenders must be able to act fast. Unlike traditional institutional investors, they don’t have the luxury of extended decision-making processes. This principle is foundational to gator lending: the ability to make fast-paced transactions to secure a deal through a third party.
- Risk Tolerance: As with any investment, there are risks involved. Gator Lenders must be comfortable with this and be able to intelligently manage risks. As we said before, earnest payment and transactional funding remains in a relatively gray legal area, thus, the risk for losses is always present.
- Strong Professional Networks: This is probably the most crucial factor, and it’s the reason why Pace Morby created this method in the first place: to extend your networking. By helping others, you expand your real estate circle and forge strong connections, but for that, you need contacts before starting out.
Gator Lending is featured in one of the many courses offered by Pace Morby, known as the Gator Method with Pace Morby. If you’re interested in exploring other online courses or platforms in the real estate sector that can help you earn money, check out our review at Go.Awesomerei.com.
Basic Terms Needed to Fully Understand Gator Lending
Gator lending doesn’t just demand having excess capital, which you must be capable of making it circulate within the market in a moment’s notice, but also a strong grasp on many legal and financial terms. Otherwise, you will feel lost and overwhelmed. Some of these concepts are:
1. Transactional Funding
Also known as same-day or flash funding, transactional funding refers to very short-term loans used by investors to purchase properties. These loans are typically repaid within days or even the same day, using profits made from selling the property quickly.
2. Interest Rate
An interest rate is the percentage a lender charges for borrowing money. This rate applies to the principal loan amount, which is the initial sum taken.
In the Gator Lending method, interest rates may range between 6% to 12% Annual Percentage Rate (APR) for the borrower, but these numbers will vary depending on the terms agreed upon between the lender and borrower, such as the length and size of the loan.
3. Earnest Payment
Earnest money is a deposit made by a buyer to show their commitment to purchasing a property. Typically, this deposit is a percentage of the property’s value, usually 5 or 10% of the total amount, and is held in a trust account until the deal is closed.
If the buyer backs out, they risk losing this payment unless agreed-upon contingencies are met beforehand.
4. Private Commerce Real Estate (CRE)
CRE refers to properties primarily used for business or income-generating activities, like office buildings, retail spaces, multifamily units. Unlike other types of real estate properties, these are negotiated directly with the party that owns it and aren’t available at the public market.
5. Down Payments
A down payment is the upfront portion of the purchase price paid by the buyer. This payment helps reduce the total loan amount and the interest paid over time. Through gator lending, buyers are capable of halving the total amount they will have to pay.
6. Wholesalers
Wholesalers are investors who switch properties quickly without using their own capital. Instead, they use other people’s. In this case, the gator lender’s. They typically have buyers ready to purchase the property, allowing them to repay loans quickly and with minimal risk.
7. Trust Account
A trust account is a financial account managed by a trustee for the benefit of a third party. In gator lending, the trustee will hold the money used for the earnest payment until the deal has been successfully closed.
Gator Lending Contract: An Alternative to Traditional Loans
Unlike traditional borrowing methods from central banks, financial entities that use gator lending offer a more customer-oriented approach, with flexible and competitive interest rates and fees. This makes it more attractive for small businesses and entrepreneurs who prefer not to be in debt for long periods of time.
Gator lending is a legitimate tactic and is not illegal in any way. As with any investment, there are risks involved, Gator lenders must be comfortable with this and be able to intelligently manage risks. If you prefer, explore the advantages of an online business to understand more about safe and effective financial practices.
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