The Secret to Always Having Money to Loan (It’s Not Sexy, But it Works!)
In a word…PERSISTENCE!
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As spoken by our 30th American President, Calvin Coolidge, “Nothing in this world can take the place of persistence…” This is an insightful, but long quote, so I encourage you to look up the complete quote. I am not a ‘RA RA, fill you with a great deal of fan fair’ kind of guy, so let me tell you practically how I persist as a Private Lender – EVEN WHEN I RUN OUT OF MONEY TO LEND.
All my promissory notes are short term in nature â typically no more than one year. I have a sense of security my money is coming back to me. With new loan payoffs, I can re-loan my funds and obtain another small loan fee. Continually turning my money, I always have funds available to make more loans. Since I have a system, making new loans takes very little time.
Just Sit Back and Collect a Check?
Some private lenders like to put their money out in the market for multiple years, sit back and collect an interest check. This is a good idea in theory. Practically, however, the collateral can become stale, dated, used, and unimproved, hence lose value.
Since Private Lenders are collateral-based lenders, collateral is the lynch-pin of our business. As a Private Lender, you always want to ensure your collateral is fresh and is being improved. For example, I don’t like to allow my borrowers to rent out the real estate I have taken as collateral because renters have a way of destroying a property. I don’t want my borrower to get himself into a problem when his renter is found cooking methamphetamine in the kitchen (true story) because my borrower isn’t watching his property and then ask me to pay for it.
Your Borrower Will Thank You!
Also, by making short term loans, I am in and out of the market. I don't give the market time to move against my collateral value. On several occasions, I have had borrowers come back to me and thank me for not making them a longer term loan when they asked for it. Short term loans, while creating a small amount of borrower stress, keeps the borrower on track and focused. Making long-term loans subjects the lender and borrower to market fluctuations out of both your control. Frankly, anytime I have lost money, I have given up control.
You Have Heard it Said….
"A boat is safe in the harbor, but that's not what it is made for" When your âboat', i.e. money, is âout to sea', you are at risk. The longer you are at risk, the more dangerous it is for your money. How many of you have seen the television show on "Deadliest Catch"? It is about crab fishermen in the Bering Sea near Alaska. Waters are very rough in the Bering Sea and unforgiving. Once the boats are full with their catch, the Captains turn tail for the harbor. They don't stay out in the Bering Sea. Same thing with your money. Mitigate risks by persistently making short term loans. If your borrower wants a longer term, tell him his local bank may want to do the loan.
To Your GOOD Wealth…
Photo: kevin dooley