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INVESTING 101 EDUCATION

Frequently Asked Questions About Private Money Lending

Private money lending is one of the most—if not the most—passive forms of real estate investing available. This makes private money lending desirable because it doesn’t require vast amounts of time or attention in order to reap the rewards. If you’ve never done private money lending though, you probably have a lot of questions about how it works.

Can Anyone Be a Private Money Lender?

Most private money lender opportunities require that the lender be an accredited investor. This is to satisfy government regulations and to protect less sophisticated investors who might not fully understand certain investment types.

Do I Need a Retirement Account to be a Private Money Lender?

When you read about private money lending you often read about using retirement account funds at the same time. This is because many people keep a large portion of their retirement funds in a 401k or IRA. You can use retirement account funds to invest in private money lending opportunities, but it’s not mandatory. You can use any funds you have available, including money you have in a savings account.

Is Private Money Lending Risky?

There are risks involved in every kind of investment. Private money lending carries its risks, depending on the circumstances of the project. You can mitigate any risks of a private money lending opportunity with some simple due diligence.

  • Request references – Your private money lender should have experience with prior endeavors. Ask for references or records of previous private money lending projects. Ask if they followed through on promises. This will give you a good idea if they have a good track record.
  • Understand Your Rights – In the event that the borrower defaults on the loan for any reason, you’ll want to know what your rights are to reclaim your investment. But you shouldn’t wait until that scenario to know your rights. The best private money lending scenarios give you first lien position. That means that if the borrower defaults and other creditors come forward, your loan gets repaid first in the event of loan default.
  • Review Loan Terms – Be knowledgeable about the loan terms. Read over your loan documents and have your investment attorney read through them if applicable. Understand how much you’ll stand to gain in interest payments each month, how long the loan period is for, and if you have any options to roll over your investment into a new project.

How Do I Find Private Money Lending Opportunities?

Private money lending opportunities exist in many areas of life, including real estate. At American Real Estate Investments, we often have private money lending opportunities for accredited investors with up to a 12% fixed annual return. For information, just contact us.

Other companies offer private money lending opportunities as well. Just be sure to conduct your due diligence with any private money lending borrower that you consider getting involved with.

If you’re interested in investing in a private money lending opportunity or even if you’re not quite sure about investing yet, we’d love to hear from you. We’re happy to answer any questions you may have about this lucrative and passive real estate investment opportunity.