Also known as P2P, there are several advantages for the private lender. Foremost is that the private lender can pick and choose the projects they want to fund. If an individual or proposed transaction doesn't satisfy their criteria, they do not have to go through with the loan.
It is up to the lender to define the terms that are attractive and advantageous to them. This can include the loan amount, number of loans and duration.
The greatest advantage is that the lender determines their own interest rate. Since these lenders work outside of conventional institutions, such as banks, they are free to set rates as they choose. It is not uncommon for the lender to receive interest anywhere between 5% and 15% on a loan.
Still, many investors dismiss these lending opportunities as risky because they are only familiar with unsecured personal loans. However, there are many opportunities to offer a loan secured by collateral.
When some novice investors considering P2P hear the word collateral, they may think of loans secured by luxury assets such as jewelry, watches, vintage cars, fine art, buildings, aircraft or business assets. These may offer a certain guarantee that a loan will be repaid – especially if the lender has possession of the items. However, there is no guarantee that the borrower will want the items back. This seems more like being a pawn shop owner than an accredited lender!
Perhaps the most advantageous form of peer-to-peer lending are for real estate loans. These investments are safe and secure because they are backed by real estate. Property is immovable and covered by insurance - unlike stocks.
There are several types of loan models when considering real estate. Perhaps the most familiar are the Hard Money Loan and the Private Money Loan.
For a hard money loan, a lender will give a certain percentage (usually 60%-70%) of the marketable value of the property as a loan to a borrower. This asset based loan requires a knowledge of real estate values and the willingness to assume title or place a lien on a property as security.
A private money loan is similar to a hard money loan. One of the advantages of being a Private Money Lender in real estate lending is that these loans are more relationship-based than hard money loans.
Because the transaction is based on a trusted relationship, the investor can choose their level of involvement with a loan. A private money loan is generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. In many cases, this trusted relationship can free the lender from the day to day monitoring of the loan or developments with the property.
When a stronger partnership develops, the lender may take a percentage of the real estate transaction in exchange for offering a lower rate. With proven real estate investors, a lender may prefer to assume a percentage of the deal instead of asking for any interest. This is often referred to as a Joint Venture, or JV Partnership.
Unlike paper assets, such as stocks, private loans for real estate give great, predictable returns in the form of interest. Compared to stock markets, peer-to-peer lending for real estate tends to much safer and more secure than other forms of investments because they are backed by solid real estate.
Knowledge is power and updated knowledge is the most powerful of all.
It takes discipline, but living within one’s means is key to accumulating wealth. Being financially responsible in the present is a good way to ensure a comfortable future.
These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.
It takes discipline, but living within one’s means is key to accumulating wealth. Being financially responsible in the present is a good way to ensure a comfortable future.
These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.
Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs, and desires. Get the help you need to achieve financial freedom.
If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much.
-Jim Rohn
Above all, believe in yourself and believe that you will achieve your goal!
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Sources:
Lynda at Sonoran Sun | Private Equity Investments
