If you’ve got some extra money laying around and are looking for a strategic and smart way to invest it, you might consider delving into the world of private money lending. Specifically, when you become your own private money lender, you issue your own loans directly to other investors or even managed real estate funds. In this sense, you’re bypassing the “middle man” that people typically turn to when they need to borrow money, such as a bank or other large financial institution. As a result, you reap the benefits of being able to collect interest payments on the loan while having it paid back to you over a set period of time.
While private money lending isn’t automatically the smartest investment option for everyone, it can be a lucrative choice for those who have the right level of prior knowledge and expertise in the world of real estate or other investing practices.
Why Consider Private Money Lending?
There are many reasons to consider private money lending as an investment opportunity, especially when compared to other investment options available to you. For starters, the world of private lending is more or less shielded from changes in the market. For example, while putting your money into a specific stock can be a bit risky (the market could crash, after all), you generally enjoy a fair level of stability and guarantee when it comes to a private money loan. You essentially get to decide on your interest rate and other repayment terms, and so long as your borrower meets those terms, a private money loan is relatively low in terms of risk.
Furthermore, private money loans tend to provide you with a quicker return on your investment, with typical loans ranging from about nine months to a year. This makes them a great investment opportunity for those who want something that will pay off in a shorter term than other investment options (such as investing in real estate directly). There’s no need to get your hands dirty taking on a real estate flip on your own, and you’ll likely still walk away from the deal with more money in your pocket than the real estate investor who borrowed from you in the first place.
Lastly, getting yourself set up as a private money lender is likely easier than you think. They key is to find the right loan servicer so you don’t have to deal with the hassle of collecting payments and handling tax and other regulatory issues. Instead, by having a loan servicer, you can have a professional handle the collection of payments on your behalf, as well as their depositing into your account. These servicers will usually take care of mailing out statements, issuing tax forms to borrowers, and many other aspects of managing the loan.
What Else Do You Need to Know?
Private money lending is generally the best option for those who have already made money off investing in the past and are looking to re-invest some of their earnings to elevate their lifestyle and success even further. This is especially true as beginning investors begin working to aim higher; while it may seem like a “safe bet” to leave your money in a high-interest savings account, the truth is that you can make a lot more money by becoming a private lender and make your money work harder for you overall. That’s because when you become a private money lender, you end up securing a loan with real estate that’s worth far more than what you’re lending out.
Furthermore, there’s a higher demand for private lenders these days, especially as many banks have begun to tighten up their requirements and policies regarding loan approval. It’s become increasingly difficult for investors to borrow the money they need for these projects, which puts private money lenders in a great position. Not only do you get to make money off your investment, but you also get to enjoy knowing that you’re helping to stimulate the real estate market and the local economy by making real estate flips and other investment projects possible. In this sense, private money lenders have truly become an important part of the world of real estate investment.
Finally, make sure you have a true understanding of your wealth and money available to determine whether or not private money lending is right for you. If you only have a little bit of money to invest or set aside, this probably isn’t the best investment for you. That’s because many people looking for a private money loan are going to be asking for tens or even hundreds of thousands of dollars for their real estate projects. Furthermore, even if you do have the funds available to become a private money lender, having the right level of experience and knowledge is important to avoiding mistakes that could cost you big-time. For example, you’ll want to be careful about who you choose to lend to. Make sure you have spoken with them in depth about how they will use your money and how they will pay it back (and on what terms). Depending on the amount being borrowed, it may also be in your best interest to ask for a larger deposit. In fact, it’s not unheard of for private money lenders to ask for as much as 20% or more down.
Overall, private money lending can be a great option for those who are serious about turning their previous investment earnings into something more substantial. And with the high demand for private lenders these days, you will likely have no trouble finding eager borrowers, including real estate investors and others, as well.