How to become a money lender

How to become a money lender

For those who have sizeable sums of liquid assets or cash on hand, becoming a money lender for real estate investors can be the ideal vehicle to make their personal wealth grow quickly. As opposed to gambling on the stock market or leaving money in traditional savings accounts, a well-structured hard money loan made to the right borrowers is a safe and lucrative investment.

In fact, many hard money lenders and private lenders started off as real estate rehabbers themselves. They know first-hand how much interest their money can earn while being safely backed by tangible real estate.

Similar to a bond, a hard money loan returns a fixed yield. A hard money loan pays off at or before maturity (the agreed-upon payoff date). In the meantime, you are also receiving a set amount of principal-only payments throughout the loan period. Then, the balance of principal is returned to you, the lender upon the sale of the property.  Interest on hard money real estate loans ranges usually from 8% up to 16%. Solid, asset-based investments with this kind of interest are hard to find elsewhere.

Reap the substantial rewards of real estate fix and flip without lifting a hammer

Hard money lending is a great way to reap the benefits of real estate rehab investing without having to do the hard work of fixing and flipping. With the right preparation and choosing solid real estate borrowers to lend to, you can become money lender and safely enjoy an excellent return on your capital.

The following are some guidelines to follow to help ensure your success and minimize your risks.

  • Do not lend all of your capital, especially if you might need it sooner than the agreed upon maturation date of the loan. If this does happen, it is possible to sell your loan forward but you can count on doing so at a loss.
  • Get a solid valuation of the collateral you are basing the loan on. Inspect the property, get several appraisals, check comps, get an expert real estate broker’s opinion of the value both before and after repairs.
  • Ensure your lien position with title insurance with fraud protection.
  • Check your borrower’s credit and experience in real estate rehabbing and charge interest and points appropriately. If you find an excellent real estate flipper, you may want to keep working with that person on future fix and flip deals.
  • Insurance, including fire and liability, is essential to protect your interests in the property. Make sure your borrower has adequate coverage in place and that you are included in the policy as an additional beneficiary.
  • Documentation is vital to the success of your money lending business. Become an expert on creating the documentation you need to protect your interests. Such documents include Letter of Intent (LOI), Purchase/Sale Agreement, Preliminary Title Report, Title Insurance, Proof of Funds, Proof of Insurance, Personal Guarantee, and Mortgage Note.

Start building your money lending business today

Keep in mind that the borrowers are your customers and creating terms that help them be successful can turn them into repeat customers. It is ideal to build your hard money lending business on a handful of trusted, experienced real estate investors than taking bigger risks with those you don’t know, so consider relationship building an integral part of your money lending business.

The good news is, finding eager and experienced real estate investors is now easier than ever. LendVent connects you with only those who fit your lending criteria so you can quickly build your money lending business. Create your LendVent Lender’s Profile today.