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INVESTING 101 EDUCATION

Should You Invest in Private Money Lending?

There are lots of ways to invest in real estate. Interested investors can choose from REITs, turnkey rentals, fix and flips, commercial real estate and more. But one of the easiest ways to invest in real estate is often overlooked, even by seasoned investors. Private money lending can be a lucrative form of real estate investing, and it doesn’t take a whole lot of resources to get started in it. Still, not everyone can be a private money lender. If you are qualified and you have the resources, should you invest in private money lending?

What is Private Money Lending?

With real estate private money lending, an investor provides a certain amount of capital to a borrower to work a real estate deal. That deal may consist of anything from a single-family home flip all the way up to a multi-acre residential community or a commercial build. The borrower then makes payments against the private money loan, along with interest. At the end of the term, the borrower makes one last lump sum payment to fulfill the loan requirements. In a private money lending deal, the private lender acts as the bank.

What Are The Benefits of Private Money Lending For The Borrower?

If you decide that you’d like to become a private money lender, you’ll have no shortage of deals to choose from. From a borrower’s perspective, private money lending offers a lot of benefits. Depending on the borrower and the deal, it can be very challenging to get traditional bank financing for certain real estate projects. Many real estate developers face difficulties because they don’t have traditional W2 income that would allow them to qualify for regular bank financing. Other borrowers find that banks don’t understand the real estate project or won’t lend on reasonable terms. For those reasons and more, private money lending is an attractive alternative for a variety of real estate developers.

What Are The Benefits of Private Money Lending For Lenders?

To be sure, there are even more benefits for lenders who do private money lending deals. One of the biggest benefits to consider is that private money lending is 100% passive income. Once you sign some paperwork and lend the money, you don’t need to do anything else except accept your payments. It’s 100% hands-off, passive income. In that way, it’s a lot like investing in the stock market, but that’s where the similarities end.

Private money lending offers nearly unbeatable returns. Because private money is so highly prized and serves such an in-demand niche in the market, returns are consistently in the double-digits. Not only that, but the term lengths for those returns are remarkable. Terms can be as short as twelve months but are often in the 18-month to two-year range. For that high a percentage and that short a term, you can see why private money lending is one of the most attractive real estate investment vehicles that exists. But are you the kind of person who should invest in private money lending?

Another seldom-discussed benefit of investing in private money lending is that you are able to invest in more creative deals. Private money lending deals run the gamut of everything conceivable. As a private money lender, you could help things come to fruition that may have never been possible without your help.

Who Should Invest in Private Money Lending?

First, it’s important to know that you do need to be an accredited investor to get involved with private money lending in most circumstances. It’s fairly straightforward to get accredited, and once you do, you can use that accreditation to invest in multiple private money lending opportunities.

If you’re interested in investing in real estate but are not interested in getting your hands “dirty,” with a hands-on project, private money lending may be perfect for you. Since there’s no direct involvement with the physical property, you can sit comfortably at home while the project’s being developed. You’ll never have to lift a finger to do anything more than sign that first “check.”

Private money lending is a fantastic opportunity for anyone who is busy with their own lives and doesn’t want to take on a second job of any kind. It’s perfect for professionals who are two busy to look for real estate deals, or who don’t have the time to personally oversee real estate projects. It’s perfect for those with a good amount of money saved up for retirement, or for anyone looking to make better returns than the stock market offers.

Now that the new year has arrived, this is a good time to take a closer look at your investment portfolio. Are you achieving the returns that you anticipated when you set up your accounts? If not, it’s a good idea to consider becoming a private money lender. We have lots of private money lending opportunities that you might be interested. Please contact us today for more information or to get your questions answered.