Investing in real estate is essentially one of the smartest and safest strategies to promote wealth building.
With the proper foundation and knowledge, investing in real estate can be highly lucrative for anyone. But let us be honest, you already knew that. Of interest, however, is what an investor can do with the money they make from a profitable career.
While a portion of profits will undoubtedly be allocated to the lifestyle of their choice, investors are advised to be smart with their money. Of course, you can reinvest into another property, but if you are looking for an alternative there may be one option you have not considered yet: private money lending.
Investors who have the funds to do so should consider private money lending in real estate. This process offers the same type of underlying security and profit potential as rehabbing or wholesaling, but without acquiring new properties.
Private money lending is when individuals lend their own capital to other investors or professionally managed real estate funds, while securing said loan with a mortgage against real estate. Essentially, private money lending serves as an alternative to traditional lending institutions, like big banks.
As rookie investors gain experience, they strive to aim higher. Leaving your hard-earned money in a savings account is no way to protect and grow your assets. At the end of the day, private money lending allows you to secure a loan with real estate that is worth much more than the loan. In some ways, this process can be less risky than owning real estate. That is why it’s important to familiarize yourself with the best real estate financing options available to today’s investors.
In the past, real estate financing typically came from banks, government agencies, insurance companies, and pension funds. However, with a list of strict requirements and a timeline not conducive to the average real estate investor, a need for alternative lending sources quickly developed. At the same time, it became obvious to those with appropriate funds that their money could better serve investors than large institutions. Now, private money lending is a critical component to the real estate investment industry. In fact, its presence makes it more possible for the average investor to run and maintain a sustainable career.
In case you were unaware, there are several benefits involved for those who choose to lend private money as well. If done correctly, offering alternative real estate financing options can mitigate risk while simultaneously establishing wealth. Of course, this is not a path for everyone. You need to ask yourself if you can afford to do so. Having a little extra money in the bank does not necessarily mean you should throw it at the first investor who comes your way. If you are equipped to mitigate potential risks and take advantage of the opportunities that present themselves, private money lending may warrant your consideration.
You may want to consider private money lending if one of the following applies to you:
Still on the fence? Don’t worry; the following will answer any questions or concerns you may have about pursuing a private money lending business:
The concept of a private money loan is relatively simple, three elements are required for a loan of this nature to transpire: a borrower, a lender, and a lot of paperwork.
For all intents and purposes, private money lending is perhaps your best chance to invest in real estate with no money of your own. If for nothing else, private money loans can provide for investors in need. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, banks and other financial institutions typically do not provide the same combination of speed and transparency in the decision-making process.
As I mentioned above, private money lending can offer several benefits for everyone involved. It is not uncommon for investors to eventually expand into private money lending themselves due to these benefits. If you are interested in private money lending, there are a few steps you can follow:
The concept of private money lending is relatively simple: without money, real estate investing does not exist. Money, like in every other industry, is the lifeblood of an investor. Real estate investors need to actively work on securing private money loans to fund their deals. Often, the average investor isn’t capable of funding a deal with their own money. Moreover, even if the funds are readily available, investors will seek the assistance of private money. Regardless of a investor’s situation, there is a particular likelihood of them needing private money assistance. Instead of having to pool money or stretch every dollar, investors are given more options to grow their business with the use of private money.
Perhaps even more importantly, is the speed and efficiency in which private money may be obtained. The speed of implementation is critical to an investor, and it can mean the difference between closing on a deal and losing one. Having the money in a timely manner can make it that much easier to close on a deal.
With private money lending, you will be confronted with several types of borrowers. While each is unique, they are all looking for the same thing. Here are the four types of borrowers you may encounter:
Private money lending is attractive because of the flexibility it offers, not only to borrowers but to lenders as well. You see, with a traditional loan lender will generate income through interest payments made by the borrower. Private loans, on the other hand, allow lenders to negotiate exactly how (and when) they will be paid back for the loan. This opportunity opens several perks not traditionally offered to investors. Read through the following agreements to learn more about making money as a private lender.