Lending to real estate investors offers the private lender many benefits not otherwise enjoyed through other means. Before we get into the benefits, let’s briefly explore what private money lending is. In the real estate finance industry, private money lending refers to money that an individual, not a bank, lends to a real estate investor in exchange for a predetermined rate of return or other consideration. Why private loans? Banks do not typically lend to investors on properties that require improvements to reach market value, or “after repair value” (ARV). Smart people with cash available in a brokerage account or self-directed IRA realize they can fill the gap left by banks and earn a higher return than they can currently in CDs, bonds, savings and market accounts. currency, or even the stock market. Thus a market was born, and it has become essential for real estate investors.

Private money loans would not have become popular unless lenders saw great value in them. Let’s review the main advantages of becoming a private money lender.

Terms are negotiable – The lender can negotiate the interest rate and possible profit sharing with the borrower. In addition, interest and principal payments can also be negotiated. Any mutually agreeable arrangement for a private loan is permissible.

Return of investment – Current interest rates charged on private money loans are generally between 7% and 12%. These rates, as of April 2018, are currently higher than the yields on CDs, savings, and money market accounts. They are also higher than the 4.7% that the stock market has produced, adjusted for inflation, since 1/1/2000. That’s over 18 years.

Guarantee provided – The real estate property serves as collateral for the loan. Most real estate investors buy their properties at a significant discount on the market. This discount provides the lender with quality assurance in the event of a borrower’s default.

choice – The private money lender can choose who to lend to or in which project to lend. They can get detailed information about the project, the experience of the investors, and the type of profits that are typically made.

No effort – The Lender only cares about the loan. The investor assumes all other risks and does the work of finding, buying, repairing, and selling the property. The lender only charges interest.

Stability – Real estate has its ups and downs. But its volatility is not as pronounced as that of the stock market. Also, when purchased at an appropriate discount, the property provides a cushion against the ups and downs.

Tax Free/Tax Deferred – A private money lender can lend on real estate from a self-directed IRA. Earnings made can grow tax-free or tax-deferred, helping you build retirement savings faster than ever.

Diversification – Real asset, tangible, brick and mortar loans provide additional diversification to a lender’s portfolio to provide protection in the event of a down period.

If you have a desire to invest in real estate, but don’t want to take on all the associated risks, or get your hands dirty, private lending could provide you with a wide range of opportunities and benefits to increase your wealth and provide for your retirement. .