Is Private Lending for You???
Private lending offers excellent opportunities and presents many unique challenges. With traditional bank CDs offering abysmal interest rates that have not gone over 2% for about a decade, many long-term investors are attracted by the return of 5% of higher and sometimes 10% or higher by being a private investor. When it is a hard money loan the annual return is 15% or higher.
Do’s and NoDo’s
Successful private money lenders follow some really easy to remember rules, which are PROTECT YOURSELF with direct access to collateral.
Those who want to access private money lenders need to follow the same concept, which is to BRING collateral to the table. Otherwise, do not ask for the money.
Do’s
- As the lender, it is very important to know there is enough collateral in the deal to cover the loan, even in the worst case scenario, which means you need to get rid of the property in a the fastest and most efficient way. If you can think of the worst-case scenario, then double the trouble and prepare for that, otherwise you may end up losing on the transaction.
- For the borrower, bring real value to the table. In other words, COLLATERAL! Private lenders do not care so much about your FICO score. They care more about the collateral. Come to private lenders with this in mind and have some “skin in the game.” That means you will lose real money if the deal goes bad. Private lenders love it when you are risking real money as well.
Nodo’s
- As a lender, never, ever, lend to friends and family. If they cannot pay back the loan, then will no longer be friends and you will wish for the day, when they are no longer part of your family.
- As a borrower, NEVER take money from friends and family. Never, ever, do this. If a stranger cannot see it is a great deal and wants to lend money to you so you can go ahead, then you should not burden your friends and family with such a lousy deal.
Do’s For Borrowers
- Do believe in yourself, because you are in the best position to evaluate your own ideas.
- Do network and constantly tell others of your great ideas and invite them to participate by giving some suggestions and even if they have the time to become part of it.
- Do write everything down. Keep good accounting books. Get and keep receipts. Be honest and truthful in all your dealings. Even when there are problems, just talk about them openly, especially with your investors.
Do’s for Private Lenders
- Do your best to add more than just money to the deal. Your experience and wisdom is probably worth a lot more than just your money.
- Keep records and write everything down.
- If there is a problem, such as with a late loan payment, take the time to talk with the borrower, before going into overactive attack mode.
Conclusion
Private lending is so important. The lenders, who manage the process well, get a much higher return. The borrowers, who access the liquidity in a wise way, get funds that they could never acquire through traditional, less-flexible sources. As with everything PLEASE exercise caution, do your due diligence, and do your best to keep your promises.