Key Benefits of Lending Private Money in Real Estate
Loans to real estate investors offer the private lender many benefits that they would not otherwise enjoy through other means. Before we get into the benefits, let’s briefly explore what a Private Money Loan is. In the real estate financing industry, private money lends to money that a person, 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 make loans to investors on properties that require improvements to reach market value or “after repair value” (ARV). Smart people with cash on hand in a self-directed IRA or broker account find that they can fill the gap left by banks and get a higher return than they currently get on CDs, bonds, savings and money market accounts. , or even the stock market. This is how a market was born and has become essential for real estate investors.
Private money loans would not have become popular unless lenders saw tremendous value in them. Let’s go over the key benefits of becoming a private money lender.
Terms are negotiable – The lender can negotiate the interest rate and possible profit sharing with the borrower. Additionally, interest and principal payments can also be negotiated. Any agreement that suits both parties to a private loan is allowed.
Return of investment – Current interest rates charged on private money loans typically range between 7% and 12%. These rates, as of April 2018, are currently higher than the returns on certificates of deposit, savings accounts and the money market. They also exceed the 4.7% that the stock market has produced, adjusted for inflation, since 1/1/2000. That is more than 18 years.
Warranty provided – Real estate 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 a quality guarantee in the event of the borrower’s default.
Choice – The private lender can choose to whom to lend or in which project to lend. They can get detailed information about the project, the experience of the investors and the type of benefits that are normally obtained.
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 the interest.
Stability – The real estate sector has ups and downs. But its volatility is not as pronounced as 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, tangible and traditional asset loans provide additional diversification to the portfolio of lenders to provide protection in the event of a period of inactivity.
If you want to invest in real estate, but don’t want to take all the associated risks, or get your hands dirty, private loans could provide you with a wide range of opportunities and benefits to increase your wealth and provide for your retirement. .