Rookie with 50K, become a private lender or purchase a rental?

7 Replies

In October my wife and I are going to be buying my parents house in Milton Ontario. The house is worth about 950k but the mtg will be for about 640 as my parents are gifting the difference in equity which will also be used as our down payment.  They will then give my sister an equal amount of cash so she can purchase her first house. We currently have no debt at all as we sold our house which we purchased when we were 24 in 2008. While we lived in it we rented out the basement then moved into my parents house 2 years ago and rented out the entire house. We’ve put aside 50k to invest either as a private lender or if at all possible a brrrr in the Windsor Ontario area as the house prices are more reasonable there.   A single family home can be purchased there for 180k. I was thinking maybe we lend in order to increase the 50k while we pay down our mtg to an amount that would allow us to borrow against the house. Or we could perhaps borrow from a private lender and purchase the rental property in less time.  Any thoughts?

With 50K you might be able to lend it but it would go quick. With 50k you could be a passive investor in a syndication or put a down payment on a rental. You have some options. Are you wanting a return sooner rather than later? Do you want passive income or what? A few things to think about...

Hi Nate,

I should have mentioned the lending would be part of a syndicate. I think the lending would let me learn about that side of the private lending side before I become a borrower for my own investing. I don’t need the principal back anytime and a couple of hundred dollars of cash flow a month would be nice in either situation.

Being a lender is a different skill than being a borrower. The upside as a lender is the agreed interest rate. The downside can be the complete loss of the capital if things really go badly (normally when there is a catastrophic event or when something toxic is discovered). Rare to completely lose yet a loss of some of the capital has to be factored in.

So, focus on what you really want to do and get on with it. Drifting through various strategies is a great way to waste time while suffering some losses mixed with some small gains.

I would recommend that you put it into a rental property. Especially if you can do a BRRRR because at the end of the BRRRR you get your money back out and you own the property. And may still have some positive cashflow from that as well.

If you lend it as part of a syndicate - you won't learn a whole lot as they really take your money and just give you the agreed upon return.

Best wishes either way!

I'd personally go the syndication route rather than the private lending route. Less complicated and less risky. But, keep in mind you'll likely have to qualify as a accredited investor to invest in most syndications. 

Per your post and replies, sounds like syndication is a viable option for you. You don't need the principal back in the near future and the passive returns would be beneficial. 

You can also seek more education as well and learn more of what you want to generally want to do and pursue. 

I don't know what your experience is with the BRRRR method but if you are comfortable with that option and experienced you could manage that option as well.

It always comes down to time and experience. Do you want to put the time and effort into this or that and do you carry the experience to follow through. Good luck!