Are You Considering Becoming a Private Lender? Use This Ultimate Guide

Here at the Rules of Thumb blog from MoneyThumb, we really like keeping our readers informed on all things finance related. Not only do we blog for accountants, CPAs, and bookkeepers, along with small business owners, we like to discuss the realm of private lending. From both sides of the fence. Today's blog post is aimed at our readers who are interested in becoming private lenders.

To help you understand all you need to know about the private lending niche and how to get started, we'd like to refer to information we discovered at Fortune Builders. It is a 4-part series of articles; an ultimate guide to private lending. 

Part 1 of the series is titled, A Guide for Private Money Lenders. Here is a small portion of the article, "For those of you who may be unfamiliar with the concept of a private money lender, these individuals lend their own capital to other investors or professionally managed real estate funds, while securing a said loan with a mortgage against real estate. Essentially, private money lenders serve as an alternative to the traditional lending institutions (big banks) people are so familiar with.

As rookie investors become seasoned investors, they strive to aim higher. Leaving your hard-earned money in a savings account is no way to protect and grow your assets. At the end of the day, you are securing a loan with real estate that is worth much more than the loan. Private money lending can sometimes be less risky than owning real estate if done properly. That’s why it’s important to familiarize yourself with the best real estate financing options made available to today’s investors."

Part 2 of the series is titled, Breaking Down a Private Money Loan. There is a lot of valuable information there. Here is a short excerpt, "Private lenders are in the business of making money. Therefore, mitigating risk is a top priority. There are essentially eight factors to consider when deciding whether or not a potential loan opportunity is viable. They are as follows:

• Market Value
• Borrower Credit
• Borrower Equity
• Additional Collateral
• Lien Priority
• Pricing Strategy
• Exit Strategy
• Due Diligence

Each of these factors must be taken into consideration when determining whether or not to pursue a loan opportunity. Failure to mind due diligence and neglect either one of these could result in harsh consequences. Do yourself a favor and navigate the process with precision."

Part 3 of the series, A Guide for Private Money Lenders, is called How to Attract Investors. Here is the link to that section of the series, and an excerpt, "While each individual investor may have their own agenda when it comes to a particular exit strategy, the returns provided by an investment are of the utmost importance. For all intents and purposes, the ROI is the motivation behind any investor. After all, money means security. Who wouldn’t want to maximize their ROI? Having said that, private lending is perhaps one of the best ways to increase returns. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers."

The final installment of the series on how to become a private lender from the website Fortune Builders, Part 4, is called Private vs. Hard Money. The following excerpts from Part 4 of the series break down the difference between private lenders and hard money lenders. "In their simplest form, private money lenders are those people with the means and intent to invest capital. Consequently, anyone with a little extra money and an interest in what you do may be typecast into the role of a private money lender. It is up to you, however, to see to it that the convergence between your business and their interests takes place."

Hard money lenders are explained here, "a hard money lender is the most important person you will work with on a project at any given time. Not unlike private money lenders, hard money provides short-term, high-rate loans, and will also typically cover the cost of purchase and rehab expenses. However, hard money lenders are typically more organized and semi-institutional. Perhaps even more importantly, however, they have been licensed to lend to investors like yourself. Hard money funding is typically distributed in draws against the work being done. It is, therefore, relatively common for a hard money lender to set up a payment schedule for completed work."

The team at MoneyThumb and the Rules of Thumb blog hope you get a lot of great information from this series if you are considering becoming a private lender. We wish you the best of luck in your endeavor! If in the process of becoming a private lender you discover the need for a PDF Financial File Converter, just know that MoneyThumb provides the best on the market for private lenders.