If you have some good money in the bank and are looking for options to invest in, perhaps it’s time to look into private money lending.
Private money lending is a private individual or organisation’s investment into another individual or company’s real estate activities. Essentially, a private money lender acts as a borrower’s bank without the necessity for complicated requirements, lengthy wait times, and hard and fast rules. The lender and the borrower can negotiate payment schemes and interest rates under their own secure terms that can be beneficial to both parties. For a private money lender, the profit can be just as much as acquiring their own property without having to do the dirty work.
Whether you’re already a real estate investor, a retiree, a professional with some extra cash, a trust fund beneficiary, or you simply want to be of financial assistance to a family member or close friend, you can consider becoming a private money lender as a means of earning passive income. While there are risks involved—as in any other investment scheme—the profits and opportunities far outweigh these.
Private money loans have higher interest rates than banks, but this can be beneficial to borrowers who run the risk of being declined by financial institutions due to low credit ratings. At the same time, because there is less red tape involved, lenders and borrowers can cut through the deal quickly and simply.
If private money lending is something that has piqued your interest, here is how you can start:
- Formalise your business and intent as an investor through proper documentation, such as insurance.
- Get in touch with a good lawyer who can help you define the do’s and don’t’s of your company, as well as help you review contracts and ensure your legal protection.
- Find your niche. Ideally, you will want to focus in your localised area, since it’s likely where you understand the market best and know the type of competitive deals to offer. At the same time, you will want to be able to have your borrower within close proximity.
- Begin the networking process. Find lending groups and platforms via social media, web searches, and of course, in your community or city.
- Get to know your potential clients. This is a crucial step before closing any deal, because you want to verify their identity, make sure that they have the capability to pay back loans, and will commit on the terms being set on the table. Practice diligence, but also be transparent and make your potential client see that you have the capability to loan them some capital.
- Make the deal. The process will be quick or slow depending on how well you and your client harmonise in your negotiations. A promissory note or a deed of contract may be enough to lock your agreement.
Of course, it doesn’t end here, because you will have to follow up on your client’s commitment to repay the loan and follow through on your commitment to release the tranches. Continuing to learn about private money lenders and seeking out advanced strategies for making the most out of this type of investment will be crucial as well to your success in wealth building.