Investing in real estate is a career in and of its own. Whether it is your only source of revenue, or it is a means for you to increase your earnings, buying and selling properties are great means to achieve your goals. However, they’re not the only way of investing in real estate. Private money lending is a less known, but very profitable way of investing your money in real estate. Sounds intriguing? Here’s a short guide on how to become a private money lender.
How does private money lending work?
In private money lending, a person or a small business lends money to another person looking to invest. It is an alternative to loaning from banks or other institutions. The lender usually secures their money through a mortgage or other notes. The exact terms of the loan are up to the lender.
For the person borrowing the money type of loan can have more advantages and be easier to get. Banks are notorious for having very strict requirements when it comes to credits and loans, and private money lending can be the perfect solution.
Who can be a private money lender in real estate?
Anyone can become a private money lender. As long as you have enough money and are willing to take time to learn the basics of the real estate market, you’re good to go. So if you’re someone with a great income or a surplus of cash you want to invest, you have a good retirement fund and are looking to make passive income, or you want the lottery, you can get into private money lending. The domain also applies to those who are already into real estate investing and want to expand their portfolio.
How to become a private money lender
Now that we’ve established how this business works and who can do it, let’s see the steps you need to take to become a private lender.
To begin, you’ll need to establish your business and obtain insurance. It might be beneficial to meet up with a lawyer who can help you get your business started. Then you need to figure out how you’ll identify your potential clients. If you’re getting in the business to help people you know, this part should be easy. But if you want to grow beyond that, you’ll probably need a network that will help you reach your ideal clients. Some real estate businesses help pair lenders and potential buyers who’ll need a loan. Anchored Homes is such an example. All you need to do is register your intention to become a lender with them and they’ll take care of the rest.
Remember there are risks to any business so be prepared in case unexpected things happen. For instance, when lending, you’ll need to vet the borrower and the investment property. You’ll also need to be prepared in case the borrower doesn’t pay or is foreclosed, so make sure your contracts are well-written and the conditions are properly established before you lend the money.
To sum up
Private money lending is a great opportunity both for the lenders and the borrowers. As a lender, you have the chance to make a passive income and you have access to great real estate deals. As a borrower, you’re not held back by all the requirements banks and other similar institutions have. There are risks, but it is safe to say that if things are carefully planned, they are minimal and the benefits outweigh them.