Investing in real estate is what everyone wants right now. Given the spike in the market and the real estate business achieving new heights – every warmhearted American wants to invest in real estate. But the most important question is how to invest and what options do you have when it comes to private investments?
One thing that most people do is that they buy properties and then reap benefits from selling it later at a higher price or just simply rent them out. However, there are ways such as private lending and hard money lending that can also help you reap benefits from the real estate business.
What is Private Lending?
Private lending refers to the term used to define loans that are provided by the investor on the basis of assets of the person applying for the loan. There are quite a few factors that you need to learn before you dig into the private lending business.
The catch is that you’re providing loans to people just like a bank does, but you’re not a big bank. You can consider yourself as a private investor. You will give loans to real estate agents and builders who work on big projects. You can also loan to people who want to construct their own house or buy an apartment, but that is something that most private lenders don’t prefer doing.
If you’re an individual, you’d pretty much want to go for hard money loans. Hard money loans are slightly different from private lending. The fine line between private lending and hard money loans is that if you are providing private loans to someone, you’re not considered an investor and vice versa when you’re doing it as a hard money lender.
Although, you can safely say that both are pretty much the same thing. Real estate finance was usually driven by banks, government loans, retirement plans, and insurance companies. We all know how hectic that can be, maintaining a credit score for your entire life, and then being rejected by a fancy bank is something that you might not want to go through. Therefore, private lending is better than loans acquired from banks. They are short and have a higher markup, but comparatively, if you do the mathematics right, they are quite cheaper than bank loans.
How to Become a Private Lender?
If you have the money and want to improve your portfolio by investing in real estate, private lending is the best option for you. Let’s say you just won a lottery and now you want to invest money into something that reaps viable profits in a short period of time. Now, what options do you have? Stocks? Real estate? Open a restaurant?
To counter, stocks are too risky. People spend their entire lives trying to learn the science behind stocks and opening a restaurant requires too much of your time and commitment. Real estate seems like a viable option, even when you’re just buying a house and selling it later, I’m pretty sure that you’ll reap a good profit if you know how to play the game.
Becoming a private lender is not that hard. You just need to know who is doing what and where to invest. Trust is the biggest issue, try to build a vigorous network that allows you to play your cards right.
The first step that you need to take is to establish your business and be professional about it. Once you’re done with the research, you’re ready to establish your business. Know where to and how to establish it. Talk to the right people, and make sure they tell you everything about the business.
Get yourself a good lawyer. When you’re dealing with money and when it is a risky business such as private lending, you’d need a good lawyer. A lawyer who has experience with calculations and real estate, someone who has worked within the industry and has viable experience in real estate.
Join a peer-to-peer lending platform and get familiar with how to play with things. Once you know how they talk and what the process is, you’ll build links and we all know how important it is to build links within a network that deals with you always being the stronger party.
Last but not the least, evaluate portfolios of potential clients. Get to know them, take them out on lunch, always know who can help in what ways, and work smart, not hard. Hire someone who knows how to market your business, make sure the people around you know what you do, and clients will walk towards you.
How to earn from loans?
It is important to understand that private lending works a little differently than bank loans. They are short, the age of an average private loan is not more than three years. Now you need to devise a plan in which you should know how much markup you’re going to charge on loans.
You can decide on a markup, given the time provided for the loans. Make different packages for your clients and make sure that they understand the point here. Your packages should be compact, not leaving any room for adjustments because that can get ugly.
Moreover, private lenders such as Republic Invest charge a higher markup because they are making the capital available for you instantly. You can use this to your benefit and devise a plan that can help you join a network like Republic Invest.
Furthermore, you can also hire an expert accountant who can manage your accounts and also guide you on how to finance loans. Keeping in mind the situation of the economy and some ground research about real estate will also give you an edge over others while planning to earn from private loans.
Tips from professional money lenders
Every sensible investor will always ask you to get yourself a good lawyer. A lawyer who knows this business at the back of his head, who knows how to get things done, and how much you should charge a certain client. The main objective of hiring a lawyer is to stay away from fraud and not letting someone over smart you by something illegal.
Never overstate who you are, take pride in yourself. In my career I have seen people brag about their businesses, saying that they are running a million-dollar firm, and then they go by not even trying to loan out builders. If you’re starting out small, there is nothing bad in it, there are 8 billion people in the world and I’m sure if you do it right, you’ll always attract customers no matter what. Starting out small is one of the cleverest things you’ll do, no one wants to go all in.
Never invest in a property that is off-shore for you. Invest locally and invest smartly. At least, if you invest locally, you will have the chance to keep a check and balance. And lastly, research and plan about your every move. I have not met a single millionaire who would step in something he is not completely aware of; therefore, try to be a know it all!