Your The Bank 

BE A PRIVATE MONEY LENDER: TIPS FROM THE PROS

Simply put: private money lending allows you to act as the bank for other investors. Rather than directly purchasing assets, you get the opportunity to fund those owned by colleagues and partners. By now you likely realize how beneficial this set up can be. However, there are a few more things you should know before getting started. Read through the following tips before taking on your first deal as a private money lender:

  • Start Out Small: Identify a range you are comfortable working with, and stick to it. The number one mistake private money lenders make when starting out is spreading themselves too thin. Assess your finances, and your preferred level of risk, and create clear guidelines for potential projects. If someone approaches you searching for more than you want to offer, do not be afraid to refer them elsewhere.

  • Find A Good Attorney: Becoming a private money lender doesn’t make you a lawyer. You will still need help when it comes to negotiating and reviewing contracts. Additionally, if you start a private money lending business there are a number of legal protections you need to have in place before getting started. Find a qualified real estate attorney in your area and bring them on to your team. Their role in your company will be invaluable over time.

  • Work Locally: There are profitable real estate deals all over the country; however, there are also deals right under your nose. If you decide to start your private money lending business locally, you can meet face to face with investors. Additionally, you will likely be more available for communications and future investment options. Don’t underestimate the potential of your own market, you never know what kind of deals may come your way. You can always expand out in the future.

  • Be Transparent: Avoid inflating your portfolio or background to attract potential investments. No matter what point you are at in your investing career, let your work speak for itself. You don’t want to misrepresent yourself or your lending business. Always maintain transparency and stay true to your mission and values.

  • Don’t Forget About Yourself: Remember, just because you aren’t purchasing assets directly does not mean you aren’t an investor. Continue your professional and financial education even if you opt for the role of lender. You still need to stay on top of market trends, financial news and other factors impacting the real estate world. While you don’t have a hands on role in the investments you finance, you still need to have a strong business acumen.

  • Learn The Subject Matter: Review the types of borrowers listed above and familiarize yourself with the different deal types. Learn what factors go into a successful rehab, buy and hold or rental property. That way, when a borrower pitches a deal you know how to evaluate it for yourself. Obviously they are going to paint the investment in a good light, but is it actually profitable? To be a successful private money lender it is crucial to understand exactly what goes on in the niche you choose to invest in.