Successfully invest in real estate using private money lender

There are many ways to successfully invest in real estate. One that is currently taking on a new life is private money investing. The banks sitting on the side lines, creates an opportunity for investors to make a decent return making private money loans.

Hard money is one of the most popular ways of going about this. Of course, every private contract is written for the mutual benefit of both the investor and the lender but there are general rules that drive the hard money market. One is that these are generally short term loans averaging between six months and two years.

Another common denominator is that hard money lenders mostly don't care about the credit rating of the borrower. Lenders are more interested in the value of the property securing the loan. In today's market, most lenders won't lend more than 70 percent of the appraised value of the property. That creates a 30 percent buffer to secure the loan.

As a private money lender, you can expect to earn at least four to six percent above the prime interest rate. One thing that hard money borrowers expect is a fast closing. Because there is no credit check, closing typically occurs in six to ten days after the appraisal is completed.

If you are interested in real estate investing as a hard money lender, you might want to consider your retirement account as a source of funds to make loans. You can do this by setting up a self direct 401K or IRA account. It can be funded from an existing retirement account. A self directed IRA can make hard money loans with the earnings going back into your retirement account tax deferred until you begin making withdrawals.

Of course, retirement accounts are not the only source of funds for hard money loans. Any source of funds can be used. If you are interested in becoming a hard money lender, I'd like to hear from you. We can explore the types of markets you are interested in getting into.

All the Best,
Peter Vekselman