Private lending. What is a "Private Lender" and why should you become one? A "private lender" is a person who loans money to another person. Generally speaking this includes any loan you may make to a family member, friend or total stranger. For the purposes of this discussion we will consider private lenders to be those people who loan money to professional real estate investors for the purpose of buying, refinancing, and/or repairing residential and commercial real estate. Your funds are always secured by a mortgage/trust deed on the real estate and a promissory note to pay back the loan to you. In short, the private investor/lender is for all intents and purposes the "bank" to the professional real estate investor.

There are several advantages to both parties in this arrangement. First, the parties are able to negotiate the terms of the loan down to the finest details; rate of return, payment due dates, simple interest vs. amortized, etc. For you, this is a great way to get a much better return than you would typically receive from savings accounts, CD's or money market accounts. Even though there is always risk, as with most any investment, your private lending funds are secured by real estate that is well below market value, and is covered by an insurance policy (with you as the payee), lower risk, secured, and insured! Unlike directly owning real estate this is a 'hands off" approach. As a mortgage holder, you are not responsible for dealing with tenants, toilets and maintaining property. Lawsuits and other legal entanglements are always between the owner and the tenant, not the mortgage holder. Lenders are almost never named in real estate court-related claims. What's really nice? Self directed IRA's, and stock portfolios can be utilized to invest in real estate this way, now there's a solid retirement plan.

For the real estate investor, private lending makes transactions run much faster and smoother. Conventional lenders drag their feet taking months to do approvals, and they place limits on the amount of deals an investor can do. By having cash, and the ability to close quickly on deals, the investor is able to negotiate deeper discounts. Sellers are willing to drop their asking price if they are able to close quickly for cash. Speeding up the transactions also gives the real estate investor the ability to do more deals. More deals equals more money for everyone!

There is one more party who benefits from this arrangement than the private lender and the real estate investor, and that's the end buyer. Once the property is repaired and ready for resale, the investor is able to offer a great deal to end buyers by passing on the savings from the discount on the deal. And, having paid cash, the real estate investor now has more creative options for end buyers to be able to purchase as opposed to just renting. The investor can use a lease option or land contract, to assist those who may have a challenge with a down payment or credit. Once, credit is repaired and the end buyer is qualified, they can either obtain new financing or a refinance and cash out the private lender. Talk about win-win, this is win-win-win!

Partnering up in such a way, can help to turn around neighborhoods that are distressed, by getting properties repaired and occupied with tenant buyers. It helps the economy by getting more dollars in play, faster. Jobs are created for service providers, contractors, realtors and more.

If you are interested in finding out more about how to get better returns on your money, just send us and email at FriendsGroup@gmx.com we will be happy to help you with any questions, including how to utilize an IRA, 401K or stock portfolio.

DISCLAIMER: THIS IS NOT INTENDED AS LEGAL OR ACCOUNTING ADVICE, IT IS MERELY FOR EDUCATIONAL PURPOSES ONLY. ALWAYS SEEK ADVICE FROM COMPETENT LEGAL AND ACCOUNTING PROFESSIONALS.