The real estate business is one of the most lucrative enterprises. It is a timeless business whose odds seem to always work for you. However, it is not devoid of ups and downs. And like any other startup, buyers and sellers often seem to need money.
Which is the best way for an investor to plow back the money they earn from a real estate venture? Enter hard money lending.
What is private money lending?
You happen to have a substantial amount of money in your account after selling a number of estates. You then learn of an investor who’s having a financial crisis or a real estate fund seeking more capital. These parties are willing to secure a loan with a mortgage against their real estate. Do you see an opportunity to grow your money?
Private money lending describes a loan awarded to a company or an individual by a wealthy business person or a private organization. The loaner is known as the private money lender.
Why settle for a private loan lender?
This option is convenient to borrowers who may not qualify the conventional banks from loans and money lending institutions. Private money lending has fewer requirements and regulations. The borrower also has the freedom to use the money as they will, unlike banks that may give asset financing.
Is it a risky affair?
Private money lending is a relatively easy way to secure a loan. Nonetheless, it’s a risky business for the lender and the borrower. Most hard money lenders, such as hard money lenders in San Antonio, Texas charge interest based on the prevailing interest rates. However, they may be remarkably expensive because they give you money you’d otherwise not have gotten.
Additionally, if the lender knows the purpose of the loan, they may charge a higher interest if the risk of the proposed enterprise is higher.
Private Money Lenders Risk Mitigation Measures
Hard money lending business is punctuated with worthwhile returns and lots of risk mitigation measures. Before depositing the money into the borrower’s account, here are factors to bear in mind:
- Borrower credit- What is the credit history of the borrower? How faithful are they in returning amounts borrowed? Are they quick and consistent in settling their debts?
- Pricing strategy- How competitive is your interest rate? At what interest rate are the other private money lending entities giving loans. This information will help you to regulate your charges accordingly to ensure business comes your way.
- Exit strategy- Draft a payment schedule for each borrower to help you track their payment. Acquire reliable software to help you track all the loan payment installments.
Top-tip
The borrower should do their due diligence to confirm the borrower’s information. This reduces the risk of losing your money.
Takeaway
A private money lending business is a lucrative enterprise for budding investors in the real estate industry. Instead of putting your money in a savings account, where it does not grow your assets meaningfully, put a loan at a competitive interest to a borrower in a financial crisis. You can be an individual lender or register a money lending firm.