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 particular 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 actually acquiring new properties.
What Is Private Money Lending?
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 of 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:
- You are a real estate investor looking to expand your portfolio.
- You are a doctor, lawyer, CEO, or professional of another kind who has a great income or a surplus of cash.
- You have a sizable retirement savings account.
- You are a retiree looking for passive income investment.
- You are the owner of an estate or other trust fund.
- You are a tech entrepreneur who owns a successful startup.
- You are a lottery winner.
- You want to and can help a friend or family member.
Still on the fence? Do not worry; the following will answer any questions or concerns you may have about pursuing a private money lending business:
The Anatomy Of A Private Money Loan
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.