Private lending is essentially non-bank lending. It is when an individual or entity loans money to a borrower, in this case, a real estate investor like us. Making money by lending money can be a lucrative way to build wealth.
It Creates a Win-Win for the Real Estate Investor and Lender
For the investor, monies are used to purchase and make repairs on the property. For the lender, their money is returned with interest once the house has been fully renovated and sold for a profit.
Private lending can be a lucrative way for you to earn passive income without doing the day-to-day work of a house flipper. The amount you earn on your loan will vary from project to project and investor to investor, but generally speaking, you can expect a very good return that beats out many traditional bank vehicles.
How Does Private Lending Work?
As with any investment, there are risks. However, the private loan is secured against a piece of physical real estate that is used as collateral. Because you are lending on a hard asset the risk is reduced significantly compared to other investments like cryptocurrencies for example.
The Paperwork
There are essentially two important parts, a promissory note and a lien (or deed).
Promissory Note
The promissory note is the contract between the lender and the borrower. It defines the terms of the loan including the amount and interest rate.
The Lien
The lien (deed) is recorded on the title of the property and acts as security for the lender’s loan. The deed records the debt and gives the lender the right to take ownership or force sale of the real estate if the borrower defaults on the terms of the promissory note.
How Private Lending Can Help You Retire
Imagine turning your retirement account into a bank. You have an opportunity to use the money in your self-directed IRA or Solo 401k to fund your loans. This means you’re making money on the interest on top of the loan repayment.
Most people get into private lending because they are looking for:
- A well-diversified portfolio
- An investment not at the mercy of the stock market
- Passive monthly income
- Returns on a large sum of money that beat bank returns
How to Get Started
If you’re interested in finding out more information about how our company works with private lenders, I’m happy to meet with you to discuss it in more detail, just contact me through the contact form on this website.