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INVESTING 101 EDUCATION

8 Things Every Investor Should Know About Private Money Lending

Private money lending is an investment model that’s been around for many, many years. But if you’re new to private money lending or you’re just hearing about it now, there are things you should know.

You Can Use Any Money Available to You

Private money lending is often mentioned with regard to a 401k or IRA. But you can use any money you have available to you and invest it in private money lending. It can be from private stocks you sell, a savings account or money you earn from the sale of another asset, such as real estate. There are no rules about where you get the money to invest in a private money lending project.

The Minimum Investment is About $50,000

Unlike some other investments you can make, there are usually set minimums that you need to invest in a private money lending project. In many cases, the minimum is $50k. This isn’t meant to exclude those with less money to invest; it’s simply a minimum that’s set by the sponsor in order to meet terms regarding the specific project.

Double-Digit Returns Are Not Always the Case

Private money lending opportunities may offer double-digit returns. However, you can’t always assume that every private money lending opportunity will offer you these kinds of amazing returns. When you do come upon one that offers double-digit returns, you might want to take advantage of it before the raise window closes, because those kinds of returns won’t necessarily come around again.

Returns Are Reliable

When you do invest in private money lending, you’ll be offered a certain return on that investment, which you can rely on for the duration of the contract. Unless something unexpected happens, the frequency and amounts of your dividend returns are reliable, so long as you’re working with a trustworthy project sponsor.

You Have to be Accredited to Invest

Private money lending opportunities are only available to accredited investors. If you’re interested in doing a private money lending investment, check to see if you’re accredited. If you are unsure, you can check with the private money lending sponsor, who can help determine if you’re already accredited. If you aren’t they may be able to help you get accredited.

Term Lengths Vary Considerably

The terms of private money lending opportunities can vary between projects and between sponsors. One opportunity might have a term length between 12 and 18 months. Another may have a term length up to five years or more. It’s important to know ahead of time exactly when you can expect to see your principal again. And don’t assume that just because you’re working with the same sponsor that all their private money lending opportunities will have the same term lengths.

Every PPM Should be Independently Assessed

On the same note, you have to carefully assess every private placement memorandum on its own merits. Even if you’re investing with the same sponsor, each PPM has to be looked at like a completely new project, because it is. If you aren’t familiar with the language of PPMs, it pays to have an attorney review it for you. Or you can review it yourself, as long as you understand that prior PPMs bear no relation to new PPMs, even if they come from the same company sponsor.

Private Money Lending is 100% Passive

If you’re looking for a passive investment, you can’t go wrong with private money lending. It’s arguably the most passive investment available that gives you monthly dividends. All you need to do is get your investment money together, review the PPM, invest and sit back and collect the dividends. That’s 100% passive by any definition.

If you’re ready to get started collecting fixed, double-digit returns through private money lending with American Real Estate Investments, contact us today. We have current and future opportunities lined up that we offer accredited investors. If you have questions or comments, please let us know and a member of our staff will get back to you right away.