Simply put private money lending allows you to act as the bank for other investors.
Rather than directly purchasing assets, you get the opportunity to fund those owned by colleagues and partners. By now you likely realize how beneficial this set up can be. However, there are a few more things you should know before getting started. Read through the following tips before taking on your first deal as a private money lender:
Start Out Small: Identify a range you are comfortable working with, and stick to it. The number one mistake private money lenders make when starting out is spreading themselves too thin. Assess your finances and your preferred level of risk and create clear guidelines for potential projects. If someone approaches you searching for more than you want to offer, do not be afraid to refer them elsewhere.
What Is Hard Money Lending
Hard money lending is another alternative to traditional lending sources and allows borrowers to use the investment (in many cases a property) as collateral on the loan. While many lending sources rely on a borrower’s credit history, hard money lending relies on the asset in question. Hard money lending will typically require higher interest fees than traditional loans but can provide borrowers with increased access to capital and a more lenient approval process. Investors with low credit and high equity in a property will often turn to hard money for funding. Additionally, property owners at risk of foreclosure may also utilize hard money loans.
How To Become A Hard Money Lender
Hard money lending can represent a unique opportunity for investors with extra capital on their hands. Though, with any financial decision it is important to mind due diligence and premeditate any potential risks. If you are interested in becoming a hard money lender, here are a few steps you can follow:
Hard money lending gives investors the chance to stay active in real estate, without necessarily adding a property to their portfolios. Some hard money lenders may never purchase a property themselves at all. This can be a huge perk for anyone without the time and resources to actually acquire a real estate deal, as it allows lenders to tap into the lucrative potential of real estate without “getting their hands dirty” so to speak.
Another major benefit of hard money lending is the degree of control it offers. Hard money lenders get the final say in who they work with and on what terms. Anyone who has purchased a piece of real estate likely remembers the process of applying for funds, waiting on application approvals, and going through negotiations. Being a hard money lender puts you in the driver’s seat—and that is quite an attractive perk for many.
Cons Of Hard Money Lending
With any financial opportunity, there are going to be cons involved. For those interested in hard money lending, the most obvious challenge is coming up with enough capital to get started. The amount of funds required can serve as a steep barrier to entry, but it is important to remember that real estate offers a great way in. Investors can work their way up by managing successful real estate deals themselves; over time they can generate the funds necessary to start lending.
Hard money lending also has an inherent degree of risk for the lender.
By operating outside of the traditional loan application process that big banks use, hard money lenders can truly choose who they work with. This means taking a risk on an investor who may not be approved by some standards. To counteract this risk, hard money lenders must come up with standards of their own. Lenders should be prepared to research investors, properties, and ultimately trust their gut feeling about a potential candidate.
Private money lending can represent an attractive opportunity for both parties involved. Investors seeking alternative financing sources will find the benefits include a faster approval process and increased access to funding. On the other hand, those lending may find they have unique access to potential investments and deals. No matter which side of the transaction you are on, private money lending is a viable option for expanding your financial portfolio and wealth building.
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Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: 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.
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