How To Attract Investors for Private Hard Money
While each investor may have an agenda when it comes to a particular exit strategy, the returns provided by an investment are of the utmost importance. The ROI is the motivation behind any investor. After all, money means security. Who wouldn’t want to maximize their ROI? Having said that, private lending is perhaps one of the best ways to increase returns. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers.
The Pros of Private Lending
Assuming you have decided to pursue becoming a private money lender, it is important to familiarize yourself with the benefits it provides borrowers. However, it is equally important to know the drawbacks as well. As with any new business venture, you will face both positive and negative circumstances. The decision of whether or not to proceed with this moneymaking strategy lies in the balance. Do the pros outweigh the cons for you? The following illustrates some of the biggest pros involved in private investing:
Reliable Cash Flow: While there are no guarantees, private money lenders can typically expect an annual return somewhere between 8% and 10%. Depending on the loan structure, there may be other ways in which profits are realized, like interest.
Capital Preservation: In loaning your own money, your investment will be secured by a first position “priority” lean on the property in question. Additionally, the loan-to-value (LTV) ratios are typically 60-70%, allowing the invested capital to be preserved in the event of foreclosure. Structured correctly, your investments are very safe.
Diversification: As a private money lender, you are encouraged to diversify your portfolio.
Minimal Volatility: Loans are typically short in length (usually not more than 12 months).
Passive: Private money lenders earn relatively passive income, in that their money is working on their behalf. The return on investment is not correlated to the amount of time they put in.
Private Lenders: The First 3 Steps To Get Started
Whether you are interested in having your money work for you now or in the future, understanding what it takes to get started is a critical step. Having said that, it is imperative to equip yourself with the right tools should you decide to become a private money lender. Before you make the transition from the borrower to lender, be sure to familiarize yourself with the following:
Make Sure You Qualify: Before becoming a private money lender, you must become seasoned. Essentially, you should be actively investing and using the systems that are offered to you. Moreover, if you have already rehabbed, wholesale , or turned profits with some relative degree of success; then there is a good chance you are ready to make money with the money you have already accumulated. You really can’t know where you are going until you are familiar with where you have been. Provided you meet the qualifications, you will also need to make sure that you can afford to become a private money lender. In other words; can you manage your monthly expenses while simultaneously working as a private money lender? If your answer is yes, becoming a private money lender may be right up your alley.
Pick An Angle: As a private money lender, there are multiple routes to consider. However, your choices will be entirely dependent on the amount of funding you have available, how long you want your money tied up, and the time you have to dedicate to a particular opportunity. To better understand the directions you can take, consider the following criteria:
Residential vs. Commercial
Short Term vs. Long Term
Direct vs. Passive
Each of these options will become available to you as a private money lender. It is up to you to choose the path you want to take.
Speak With A Professional:
Those set on becoming private money lenders should seek counsel from a professional that has already done it. Moreover, speaking with someone that has already done what you want to do can lead to some valuable in sight. However, if you choose to lend directly, you should speak with your team of professionals. This includes your Escrow Company, Title Company, attorney, and anyone else who may be of concern.
It is an even better idea to speak with a team of people who have been private lending for a while. While you may want to try direct lending, finding a private lending company with a good track record is a very good place to start. Remember, investing with a pool of people is one of the safest ways to go.
For More Information on private lending…
If you have realized success in real estate thus far, it may be time to invest your hard-earned money into another facet of the industry. Learn the anatomy of a private loan, how to identify the most qualified borrowers, and what paperwork and legal documentation you can expect.
Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.