Crossing Over From Real Estate Investing To Private Money Lending

Posted on: January 19, 2011

Categories: Investors, Other Articles, Profit

Author: lbuen

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photo courtesy of Cayusa

Why Try Private Money Lending?

To Extinguish an Impending Burnout. While you push your way in the real estate investing arena, do you sometimes wish you could slow down and slack off from the frenzy of scouring for handyman specials, hammering away rehabs and hawking your wares? Were there times you wish you can just call for a time-out, watch the game from the sidelines and hand out water to the thirsty players? If you are feeling this way, why not consider crossing over to the other side and try your hand at private money lending.

To Satiate Curiosity and Spur Growth. Let’s say you have considerable amount of capitalization as a successful real estate investor who has been around the block for some time.You have stabilized your finances after several flips and have constructed streams of passive income trickling from your rental properties. Some of these funds may just be idly sitting somewhere. For sure, you are already skilled at identifying which deals deserve a seat on the drawing board and which ones to be flushed down the drain. So it would be to your advantage to keep your market for private money lending within the real estate industry.

As Another Source of Semi-Passive Income. Since you use the funds of hard money lenders to finance your deals, the money you have accumulated from flipping houses may just be lying idly somewhere. Financing a real estate deal requires less work than going through the process of buying, fixing and selling properties to make money, although you will be making greater returns as a real estate investor.

Start Small As a One-Man Private Money Lending Entity

Recall the first time you dipped your toe into real estate investing. Most likely, you started with one small deal which earned you some money. Then you proceeded with doing a couple of deals, until you were handling multiple deals at a time. You can use the same baby steps in private money lending. While still doing real estate deals, get involved with one deal wherein the tables are turned and you are the private money lender instead of being the investor. You can finance a partner or someone you know who is good at it. Of course, this has to take place with the counsel of your lawyer and the services of a title and escrow firm to ensure that the deal is properly handled. You may also approach friends and business connections with deep pockets who are interested to invest their money so that you have additional source of funding once you venture into bigger deals.

Once your many small deals convince you that private money lending is your cup of tea and you want to take it seriously, then consider registering a limited liability corporation (LLC) to protect your personal assets and so that you can get access to more substantial financing from other sources. You also need to form your financial and legal team, among other things.

Things to Keep in Mind As a Newbie Private Money Lender

Lend money at less than 75 percent of LTV to mitigate risk. Ensure that these loans are collateralized by real estate. Set interest rates that are comparable to those offered by banks, other public institutions and other hard money lenders. Just make sure that you do not go against any federal laws related to money lending so familiarize yourself with these.

With your experience as a real estate investor borrowing money to fund your deals, you already know that you can charge interest rates higher than those offered by banks because you are less strict with credit rating, offer red tape-free processing, hence, facilitating quicker funding which the typical real estate investor needs.

This may lead to something or this may not, but by trying your hand on private money lending, you get the chance to delve into the private mind of a private money lender.

Private money lending could be something a real estate investor can venture into.

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