Do you have money sitting in an account that you’re unsure what to do with? Many people enjoy exploring financial opportunities that serve as alternatives to their primary income. In this case, you may be interested in learning about private money lending.
Private money lending refers to an individual loaning their personal funds to borrowers for investment purposes. To protect their funds, a private money lender will utilize a mortgage or other security essentials.
These expert tips for becoming a private money lender will enable you to help real estate investors purchase properties, while receiving a return on your investment.
As mentioned, you may have income sitting in a savings account that isn’t growing. It’s important to decide how much you’re willing to loan to others to ensure you’re consistently building your funds.
Be sure not to lend your entire savings amount—be strategic with your lending, that way you and your borrower both benefit from the transaction. You may need to convert a traditional IRA or 401k to a self-directed plan so you can lend money for real estate.
Find an Investment Opportunity
The next step is to find the right investment opportunity to work with. You may need to do a little research for this step to ensure you find a quality borrower.
You may consider attending local investment organizations to talk with potential colleagues who’re looking for private lenders such as yourself. Network with others and build your circle of professionals you can turn to with questions.
Once you find someone interested in utilizing private money lending services, it’s important to analyze their financial history to determine if it’s a smart business move to work with them. Gather their information and look out for a few common factors:
- Payment time on other loans
- Credit report
If you find that this person is a trustworthy client, you must determine the interest rate, loan term, repayment plan, and other fees. You can choose to keep your loan terms and rates static or vary it with each investor.
Keep All Records
Be sure you keep a record of each legal document that is formed between you and your client from start to finish. This ensures both parties are properly protected and reduces your risk of payment default.
Once you start collecting your funds, be sure to communicate with your borrower of any needs that come up during the borrowing process. Communication is critical to the success of your private lending services.
Follow the above expert tips for becoming a private money lender to discover a new way to earn additional income. Networking and research will be your essential tools in this area of the financial industry. You may also choose to take online classes to learn more about private money lending.