Eight Proven Techniques: Private Lending

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In the last post we learned the basics about Investing in Real Estate Notes.  This week we continue with another technique for investing that doesn't require the actual ownership of the physical property.  This technique is known as Private Lending and is becoming a very popular to make a solid return that will beat most of the banking products and be secured by the physical asset.

Definitions:
Private Lending - Acting as the lender to other investors for the purpose of purchasing real estate

• Short Term - Generally defined as 6 months to 3 years
• Long Term - Generally defined as a loan term greater than 3 years
• Interest Only - Loan payments consist of interest only so there is no paydown of the loan amount
• Principal and Interest - Loan payments consist of interest and principal that reduces the overall                                                       loan amount

How it works: Private lending is simply the act of loaning money to an investor per agreed upon repayment terms.  In most cases, you will have no active role in the real estate investment but will receive payments from the investor per the terms.  You can (and should) have a security interest in the property that you are loaning on, meaning that if the investor doesn't pay you, you can foreclose on the property.

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How to invest: There are many ways to become a private lender.  Here are some of the most common methods:

• Loaning to friends and/or family for real estate investments
• Connecting with investors in need of capital through real estate meetup groups or associations
• Utilizing wholesalers or other sellers that can match you to real estate buyers
• Joining a peer-to-peer lending platform such as CrowdStreet, RealtyMogul, etc.

Pros:

• Can be secured by property
• Provides passive income
• Flexibility in terms
• No property management required
• High rates of return
• You have control over who and what you want to invest in

Cons:

• No advantages of long term ownership
• No tax advantages of ownership
• Large capital requirements
• Risk of default and foreclosure
  
• •Lack of liquidity once invested

Where to get more information:
millionacres.com
nuwireinvestor.com

Next week we will go over the most well known technique and still one of the greatest: Long term buy and hold real estate investing.  Please reach out to me with any questions or comments using the comments button or through the contact page on my web site.  If you would like to talk more about any of these investment methods or discuss how we can partner together, please contact me.