If you become a private money lender, this basically implies that you are there to offer a financial lending hand to investors who go into the real estate business. There are number of benefits to becoming one, but before you learn each one of them, you must first have some idea what private money lending is all about.
To begin, when it comes to its application in real estate financing, private money lending is basically the process where a person but not a bank will be lending some money to the real estate investor with other considerations such as pre-determined return rates in return. Now, why opt for private loans? For most banks, they do not allow lending of money to investors whose properties have an after-repair value or simply put properties that still need to be improved to gain some market value. Some clever people who have some available cash with them in their own IRA or a broker account have realized that they can take the role of a bank on these matters and get better returns from the money that they will be lending in return. You are talking about more money than that you get from having bonds, money and savings market accounts, and being on the stock market. Thus, the private money lending industry was born helping real estate investors until this day achieve their goals one step at a time.
Private money lending would be nonexistent if not for how valuable they have become on the part of the lenders. Here are some benefits of becoming a private money lender.
• Negotiable terms: The private money lender can have the interest rates negotiated with the real estate investor or borrower to get the best possible profit share. Furthermore, the principle and interest payments can also be negotiated. Both parties will have to reach an agreement to how much the private loan must be.
• Return of investment: Usually, for private money loans, interest rates are between 7% and 12%. This range of interest rates is greater than the returns for money market accounts, savings, and CDs. This range is also higher than the 4.7% interest rate in the stock market after adjustment of inflation.
• Provision of collateral: When a real estate investor applies for a private money loan, the real estate property will serve as the collateral. Usually, real estate investors take hold of properties that come at very significant discounts. Keeping this discount in mind, the lender will have high quality collateral in case the borrower decides to default.
• Choice: With private money lending, the private money lender is given the freedom to decide to whom and to what project they will be lending some money. They are also given detailed facts on the kind of profits normally made by the investor, the investor experience, and the project in question.
• No effort: The loan is the only thing that a private money lender worries about. It will all be up to the real estate investor to take the risks and do all the necessary work to find, fix, buy, and sell properties. All the lender does is collect the interest.