Rewards Of Being A Private Money Investor

Investors who are looking to diversify their investment portfolio outside of stocks and bonds can find lucrative opportunities in hard money and private money lending as a private money investor.

  • Sophisticated investors understand the basics of investing and can weigh the risks versus rewards of investing.
  • A private money investor will lend short term hard money loans to real estate investors.
  • Experienced investors spend time in due diligence for each investment they invest.
  • Investing in hard money loans as a private money investor can be a great addition to their investment portfolio.
  • Private money investors can get great returns with minimal risk due to the collateral and the large down payment and/or loan to value from hard money borrowers. 
  • The returns from private money lending, also called hard money lending, can be more profitable and safer than returns on stocks and bonds. 
  • Private money investors have more control over their investments than passive investors in securities. 
  • Private money lending companies will go over each private money deal with hard money lenders and will do the accounting, billing, collecting, and send out reports.
  • As the private money investor, the investor decides whether or not you want to invest in the particular project. 
  •  Hard money lenders will need to be more hands on as a private money investor than they would be as an investor in stocks or bonds where the securities broker does all of the work and have no say so in the companies they invest.

What Is Involved In Private Money Lending?

Hard money or private money lending is like investing in a bond where the investor’s returns of their investment is a fixed yield and it pays off at the maturity of the hard money loan term.

  • On a case scenario where a private money investor makes a private money loan to a private money loan borrower for $100,000 at a 8% interest rate with an interest only private money loan , the return on the investment would be $8,000 each year the private money loan borrower has that loan outstanding. 
  • The private money loan borrower will eventually pay off the balance of the private money loan either by refinancing it or selling the property. 
  • Hard Money Lenders always want to know the borrower’s exit strategy.
  • Hard Money Loans are short term higher interest rate commercial loans.
  • The loan can be paid off at maturity or prior to maturity and a pre-payment penalty can be assessed if it was part of the terms of the original private money loan.

Risks Associated With Private Money Lending

All investments have risks associated.

  • Some investments are riskier than others. 
  • The more risks that is involved in a particular investment, the higher the interest rates the investor expects and the higher interest rate the investor is willing to pay. 
  • Private money lending can yield great returns with very little risk. 
  • Most private money transactions require that the private money borrower put skin in the game by putting down at least 25% to 35% down payment. 
  • Sometimes, a private money investor can require that the borrower put more money down depending on the case scenario, borrower’s credit scores, and the strength and experience of the borrower.
  • It is not uncommon for a private money investor to have a hard money borrower or private money borrower to put down 50% down payment. 
  • A private money investor can also request a 20% down payment on a private money borrower who has stellar credit, great income, and if the private money borrower is willing to put up additional collateral or cross collateralize it with other properties.

Investors who want to know more about becoming private money investors and lenders can contact Darren Herringshaw of Capital Network Group Inc. (CNG) at 800-900-8569 or email us at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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