Almost all of you are familiar with real estate activities such as buying and selling properties, being a landlord, becoming a property developer, managing properties or borrowing from a financial institution. However, there is one topic that is not well known or written about. It’s the role of a real estate private lender. A private lender knows how to lend money like a bank foryour real estate project and profit from it. In a previous blog, I discussed private lenders as a source of financing your real estate investment. This article focuses on what you need to know to lend money like a bank and earn a good return on your investment.
Is Private Lending for You?
Private lending is a passive means of profiting from real estate activities. In a nutshell, you set the loan ceiling and negotiate the loan duration, interest rate, collateral and any other details you consider important. Once your funds are disbursed to the borrower, you sit back and await the monthly repayment. If that is too much work or you do not wish to be actively involved in the day to day affairs of your investment, then you may choose to supply the funds to an experienced lender who will do all these duties for a fee. The basic requirement is that you have surplus cash at your disposal.
Secure Your Funds
Unlike a large financial institution, you can’t afford to have the borrower to default on the loan, which will leave you out of pocket. The most important rule of lending money like a bank is therefore to secure the loan with a real asset that the borrower puts up as collateral against the money borrowed. A registered first mortgage against the borrower’s property is the most secure and easily-converted- to-cash asset. A lawyer can oversee the mortgage registration process for you. Consult a knowledgeable Realtor® about property value and recommended equity to loan ratio. As financial institutions tighten their lending rules, private capital increasingly becomes a viable alternative for real estate investment projects. If you have some cash that is lying idle or you are dissatisfied with the returns on your investment, private lending may be attractive to you. On the other hand, if you are seeking investment capital to borrow against your assets, you may want to consider private lending as a suitable alternative to borrowing from financial institutions.