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Private Lending - What is it? Is it safe?

Copyright © 2009 George Antone

Republish: EasyPublish™ Published: 22Jul2009 Word count: 482 Viewed: 124 time(s) Get Free Content For Your Site

Private lending is - when individuals who have money to invest or know how to use other people's money to invest, choose to loan that money to investors who have found a great deal but do not have the money to get the deal themselves.

Usually, private money loans are short to medium term in nature (1-5 years).

Types of investments private lenders typically invest in are:

- Real Estate financing
- Commercial retail
- Restaurants
- Hotels/motels
- Marinas
- Elder care facilities
- Industrial
- Agricultural
- Raw land
- Land development
- Construction
- Rehabs
- Multi-family and single family homes

However, we recommend beginner private lenders start with single-family homes.

Private lending is a very safe investment vehicle.

There are "safety valves" or protections built into private lending which allow private lenders to sleep well at night knowing that their investments are safe and secure.

These "safety valves" are:

1. Private lenders transact their loans through state licensed mortgage loan brokers who are familiar with private loan transactions. We don't recommend that you go through just any mortgage loan broker, rather you must find a specialized mortgage loan broker who is familiar, and more importantly has extensive experience working with private individuals to broker private loans. This specialized mortgage loan broker is uniquely familiar with usury laws, predatory lending laws, Regulation Z issues and other local, state and federal laws that specifically govern and address private lending.

2. Private lenders must ALWAYS deal directly with an escrow company or closing attorney to handle the loan transaction. Only after all loan contingencies have been met should you wire transfer or send your monies directly to the escrow company or closing attorney to be disbursed to the borrower. NEVER give your hard earned funds directly to the borrower, no matter how trustworthy this person or entity appears. Having an escrow company or closing attorney handle your loan transaction gives you added protection in that these are other pairs of eyes who can review loan documents and other pertinent documents to ensure smooth transactions.

3. There must be sufficient remaining equity in the collateral property to offset any potential downside risk such as the borrower stops paying and defaults on the loan. Having at least 30% equity left in the property is standard in private lending.

For example, for a property worth $100,000, a private lender should only loan up to 70% (or $70,000) against this property. That leaves 30% (or $30,000) equity in the property, and in case the borrower defaults and the private lender ends up taking the property back through foreclosure, the private lender can then sell the property to get his money back, plus potentially make more profit from the additional sales proceeds.

Private lending can be done without much risk to the lender. If you are seeking an investment with cash flow, you should consider Private Lending! It's a safe choice for smart investors.

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