Do you want to make money and invest in real estate, but the whole idea of tenants, flipping houses, renovations, and the work that comes with it turns you off? Private lending may be your “cup o’ tea”!
If your investments include CD’s, the stock market, a 401k plan, or a savings account, you might want to strongly consider finding a group of investors and becoming a private lender. Don’t get me wrong, investing in real estate isn’t the “only”way to make your money work FOR you, but traditionally, it’s been one of the safest.
Creative real estate investors are always seeking private funds, and the interest can be anywhere up to 10%, or even 15%. Investors seek cash for anything from short term loan to renovate a property, to long term, high dollar deals where you can act as the bank, and earn an interest rate much higher than any of the previously mentioned investment vehicles.
You may ask: “If the investor is doing so well, why does he need ‘my’ money, and why would he pay such a high rate for it?”
The answer is easy. Many investors have lines of credit and or cash, but even the most successful investors can tap their credit lines. Even more likely, when a “deal” comes across an investors desk, it needs to be moved on quickly. Borrowing the “traditional” way, through banks and mortgage companies is a long, detailed, tedious process… and needs to be repeated for each loan, no matter how recent the last was funded.
In many cases, the deal is gone, long before the process can be approved and funded.
In addition, traditional lenders require more traditional terms, are inflexible with negotiating those terms, (like waiting until the project is completed for payment, for example), have penalties for early payments, as well as other things that make it prohibitive to work with them.
The bottom line, is it’s much simpler to work with a money partner or private lender, and most investors are willing to PAY for that convenience. Heck, “I” will use your money and pay handsomely for it, shoot me an email for details!
As a lender, ALWAYS do your due diligence… check title, get a note and mortgage for the property in your name, make sure YOU are the loss payee and the property is fully insured, look at pictures or the property itself, have an attorney represent you, if you don’t clearly understand the process, get help from someone that does… but don’t ignore the possibilities doubling or tripling your return in this manner, compared to the more common investment vehicles.
Another strategy, is to become a “money partner” in the deal itself. Offer to fund the deal for a percent of the overall profits, rather than a percent of the funds loaned. As a money partner, you’ll still hold a passive role, but provide the cash. This can be a way to make a lot more than whatever you might earn simply funding the project. Of course, make sure you have the proper partnership agreements drawn up, have done your due diligence in the deal itself, and realize there’s likely more risk involved.
In any case, no matter how you proceed, check with your local and state laws, and have a good attorney at your side. Use a title company if you’re funding the project and the investor is purchasing it with your $… and finally… I’m not an attorney, nor do I play one on TV!
Like the old adage, “There’s more than one way to skin a cat”, “there’s more than one way to profit from real estate!
