Lending to real estate investors offers the Private Lender many advantages that cannot be obtained by other means. Before we get into the benefits, let’s briefly review what a Private Money Loan is. In the real estate finance industry, a private money loan refers to money an individual, not a bank, lends to a real estate investor for a predetermined rate of return or other consideration. Why private loans? Banks do not lend to investors for properties that require improvement to reach market value or ‘value after repair’ (ARV). Knowledgeable people with available cash in a broker account or self-directed IRA can fill the gap left by banks and are currently in CDs, bonds, they realize that they can earn a greater return on their savings and money market accounts and even than they could. Exchange. Thus, a market was born and became indispensable for real estate investors.
Private Lending would not become popular unless Lenders saw tremendous value. Let’s review the main advantages of being a Private Lender.
Terms are negotiable – The Lender can negotiate the interest rate and possible dividend with the borrower. Interest and principal payments can also be negotiated. Any agreement that suits both parties for a private loan is allowed.
Return on investment – Current interest rates on private money loans are generally between 7% and 12%. These rates are currently higher than returns from CDs, savings and money market accounts, as of April 2018. They also outperform the 4.7% that the stock market has produced, adjusted for inflation since 1/1/2000. So more than 18 years.
Collateral provided – Real estate property acts as collateral for the loan. Most real estate investors buy their properties at a significant discount in the market. This discount provides quality coverage to the lender in case the borrower defaults.
Choice – The Private Lender chooses who to lend or which project to lend. They can get detailed information about the project, the experience of the investors and the types of profits that are normally made.
Effortless – The lender only worries about the loan. The investor assumes all other risks and does the job of finding, buying, fixing and selling the property. The lender only collects the interest.
stability – Real estate has its ups and downs. But nowhere is its volatility as pronounced as in the stock market. Additionally, when purchased at an affordable discount, the property provides cushioning against the ups and downs.
Tax Free/Tax Deferred – A Private Lender can lend on real estate from a self-directed IRA. Earnings can grow either tax-free or tax-deferred, helping to create the retirement nest egg faster than ever before.
Diversification – Lending real, tangible, brick and mortar assets provides additional diversification to a Lenders portfolio to provide protection in the event of a downtime.
If you have a desire to invest in real estate but don’t want to take all the risk involved or get your hands dirty, private lending can provide a wide variety of opportunities and benefits to grow your wealth and ensure your retirement. .