Today we will discuss the topic of private lending. My family and I (Adam) became involved with private lending about ten years ago. I learned about the private lending business when we started investing with a hard money lender. I was like a sponge and wanted to pick their brain on everything!
It’s important to point out; you’re going to see many investors on Facebook posting flashy pictures of them flipping houses and how successful they are. Hopefully, they’re successful, right? Then, you’re likely going to see: “If you’re not happy with your money in your savings account or stocks, and you want to make a nice yield, like 8% on your money, then contact me.”
What’s happening is that they’re targeting your mental triggers, and they’re looking to take advantage of your flexible money. They want to shift the risk to the lender. When you’re the lender, the goal is to shift the risk to the borrower.
They want money from investors, so they don’t have to put money into the deal, and all of the risks fall on the lender. Instead, I recommend starting the way we did. Start off investing with a hard money lender if you want to get started in the business.
If you want to be completely passive, invest with a hard money lender. Invest with a company that knows the business inside and out! I’m not saying don’t invest with other flippers. I’m just saying, be careful with that. Know what you’re getting into. Know how to underwrite a loan. Know how to protect yourself.
That’s the problem: most investors don’t know how to protect themselves. In the beginning, we didn’t even know how. But, we learned the business along the way!
The moral of the story is: If you want to get into private lending, it’s a great business. Learn from professionals. I would recommend that you start by participating with a hard money lender. You can invest directly through whole loans, fractional loans, or you can invest in a mortgage fund. That’s a great way to get started if you hope to get into the lending business and eventually become active.
Or, if you want to be passive like my father, just stick to investing with professional lenders. You’re going to earn the same returns whether you go direct or not. Yeah, you could probably negotiate a deal with a beginner flipper and get high returns, but you’re going to be taking a lot more risk. That’s okay, but just learn how to protect yourself. Most people don’t know the legal ways to protect themselves.
I want to share this with investors because this is an important topic. I’m seeing a lot of relevant news feeds on social media and investors entering the market. Real estate gurus teach how to find private money, raise money, and flip houses with no money down by coaxing a private investor to take all the risk.
Be a lender. Shift the risk to the borrower. Don’t let the borrower shift the risk to the lender. That’s it! That’s my tip of the day. If you have any questions about private lending or you’d like to get involved, feel free to reach out and get in touch with me at Adam@Levinecapital.com.