Private money lending has some distinct advantages. If one stays the course and does master the nuances of private money lending against property the returns will be way better than what one may obtain from investing in stocks. However, it is not exactly without its fair share of complexities. This cannot be an impulsive decision, as the level of commitment required is high. One needs to spend time to learn the intricacies of the business. However
We first need to understand what private money lending against property entails for an investor. Private lending is similar to investing in a bond with a fixed return and redemption at maturity. However becoming a private money lender against property does require one to be aware of certain important aspects of the process.
The foremost condition for becoming a successful private money lender has to be liquidity. One should have the ability to wait till the maturity date for this kind of investment to perform well. If one has an emergency requirement of cash one may be able to sell these loans, but against a sizeable discount, which defeats the initial purpose of the investment.
The other critical factor has to be the value of the lien or the collateral valuation. One should be very careful and diligent in assessing the value of the collateral. It would be prudent to reaffirm the value from several sources. These could include even one’s self evaluation, getting a professional appraisal done, consulting a broker and so on. It is important because the value of property offered on lien is one’s definitive protection against default.
Obtaining the title insurance that validates one’s right of lien as lender is the most important thing to take care of as this is one’s only protection against getting swindled. All the same one would also be well advised to keep a comfortable cushion of cash for inadvertent expenses like pending property taxes, bankruptcy claims or remodeling expenses in the case of a foreclosure.
Another important factor to consider even though one is protected by a collateral is the past credit repayment history. This ensures that one does not get involved in avoidable hassles later. At the same time anybody thinking of becoming a serious private money lender, a thorough knowledge of the kind of documentation required is critical. There are a number of regulations that need to be adhered to and any sort of mistake or carelessness can end up making the loan void and cause a loss of interest or fee.
Once a loan becomes operational one needs to regularly send across tax and other regulatory statements. Besides, one has to ensure that payments keep coming from the debtors. In case things go wrong and the borrower defaults on payment one needs to initiate the process of foreclosing the collateral. This can be a complex and long drawn process to learn.
Summary: Investing in private money lending against property offers certain distinct advantages over other forms of investment like stocks and bonds. However before venturing into this form of investment, one needs to understand the important factors that impact it; like the risks involved, what one can do to secure oneself, the documentation involved and so on.
Twitter Summary: Investing in private money lending against property can be very advantageous provided one knows the intricacies of the business.