We are always looking for additional investors, If you have 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 six months to two years. 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.
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.
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. Please talk to your attorney if they are able to prepare lending documents for you or we can refer you to a local attorney who can help.
If you’re sold on the idea of maximizing your wealth by becoming a hard money lender, you might be wondering what your next steps should be. By following these tips as a general guideline, you’ll be well on your way to securing your first private money borrower.
Adequate Funding
Start by making sure you’ve got enough money to lend; since many private money borrowers tend to be real estate investors, the amount of money you’re going to need up-front is significant. Many private money lenders will take money out of their own accounts for this type of investment, though if you don’t have all the money you need yourself, you always have the option of partnering with other investors to raise the funds you need as a means of getting started.
Business Entity
The first “official” step you’ll take towards becoming a private money lender is establishing yourself as a legal business entity. Ideally, you should set up your business in such a way that will protect you from individual liability. A couple of options that will allow you to do this are a corporation or a limited liability company (LLC). Both of these are relatively simple and straight-forward to set up with help from an experienced lawyer or accountant to handle the formalities for you.
Careful Preparation
Keep in mind that hard money lending is high in risk and high in reward, so you should have a “game plan” from the very beginning that takes into account best-case scenarios, worst-case scenarios, and everything in between. More than likely, you will be issuing financing to real estate investors who want to buy and flip distressed properties, so there is a fair amount of risk here, especially in terms of the potential for default. Take the appropriate precautions to protect your investment.
Referrals for sending borrowers your way. Advertising both online and in traditional print ads is another great way to spread the word of your lending services and find your first clients!
