Many people are confused by the term private money lender. The do not realize that they can profit greatly by participating in something called hard money lending. Private money and hard money lending is an individual or group that negotiates directly on a personal basis to lend money for real estate investments.
The money is funded through your personal investments such as a 401k or IRA or even money you stock piled in your savings account. The money can be used to purchase rental real estate investments or to supplement funds borrowed from a bank to cover down payments. Basically you become the bank.
What’s in it for me?
Hard money and private money loans typically offer a return on investment of at least 10% percent per year. This means if you invest in a real estate property as little as 20k per year, you are going to get a return of $2,000 on your original investment which translates into about $167 dollars per month. Compound that into a 100K investment and you could easily be earning $835 dollars per month just for privately loaning your money out. And that is with a very low return of 10% percent.
Is it secure?
All investments have some risk assessment involved therefore you need to assess your situation to decide if private money lending is right for you. Investing in loans secured by real estate offer a higher rate of return and lower risks compared to the stock market. There are no commissions or upfront fees and the borrower is required to place hazard insurance on the property and you will be named on the insurance policy as the mortgagee.
Many times the borrower is required to cross collateralize an additional piece of property giving them much more motivation to pay back their debt in a timely manner. So basically you are investing in the property without the headaches of being a landlord or contractor.