Would you rather be a private lender or own rentals/rehab?
Investor · Orlando, FL · Member since 2013 · 99 posts · 69 votes
Would you rather be a private lender or own rentals/rehab?
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Bobby FeinmanBusiness Member
Lender · VA Beach, VA · Member since 2019 · 914 posts · 91 votesAwesome post! Another option is investing in a private lending fund. the investment is diversified over all of the loans in the portfolio without the headaches of ownership, maintenance, tenants, etc. It's a great way to be in real estate and "be the bank" instead of the owner with an attractive return.
Bobby
18 Replies
- 4yBobby FeinmanBusiness MemberLender · VA Beach, VA · Member since 2019 · 914 posts · 91 votes
Awesome post! Another option is investing in a private lending fund. the investment is diversified over all of the loans in the portfolio without the headaches of ownership, maintenance, tenants, etc. It's a great way to be in real estate and "be the bank" instead of the owner with an attractive return.
Bobby
- Homeowner · Joshua Tree, CA · Member since 2022 · 69 posts · 30 votes4y
Quote from @Bobby Feinman:
Awesome post! Another option is investing in a private lending fund. the investment is diversified over all of the loans in the portfolio without the headaches of ownership, maintenance, tenants, etc. It's a great way to be in real estate and "be the bank" instead of the owner with an attractive return.
Bobby
Bobby, what protects the multiple private lenders from losing their money entirely?
- 4yBobby FeinmanBusiness MemberLender · VA Beach, VA · Member since 2019 · 914 posts · 91 votes
Do you mean the investors that invest in the fund?
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes4y
Probably another landlord that had a bad experience and burned out.
I’d hate to be at the mercy of other people wanting/needing to borrow from me. It’s kind of like flipping. It’s a job you have to be constantly hunting for customers or your income dries up in 6-12 months when the notes are paid back. You can quit looking for new rentals, and live the rest of your life With what you have. You also get the appreciation and the tax breaks.
I understand people are scared of owning stuff, but being owed dollars isn’t “safer”. I bet the same number of private lenses were wiped out during the last recession as landlords. Except they were wiped out, riding through it with a house worth less than they owed wasnt an option.
Luckily. There are 100’s of ways to make money in real estate. And if they are happy, I’m happy for them.
- 4yBobby FeinmanBusiness MemberLender · VA Beach, VA · Member since 2019 · 914 posts · 91 votes
Quote from @Bill B.:
Probably another landlord that had a bad experience and burned out.
I’d hate to be at the mercy of other people wanting/needing to borrow from me. It’s kind of like flipping. It’s a job you have to be constantly hunting for customers or your income dries up in 6-12 months when the notes are paid back. You can quit looking for new rentals, and live the rest of your life With what you have. You also get the appreciation and the tax breaks.
I understand people are scared of owning stuff, but being owed dollars isn’t “safer”. I bet the same number of private lenses were wiped out during the last recession as landlords. Except they were wiped out, riding through it with a house worth less than they owed wasnt an option.
Luckily. There are 100’s of ways to make money in real estate. And if they are happy, I’m happy for them.
Well said! I was an investor for 25 years before I became a full-time lender three years ago. Did a lot of fix and flip, was a landlord and a new construction builder for 17 of those 25 years
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
Quote from @Jeff Joachim:
I had an interesting conversation with a private lender the other day. She informed me that she hates owning property. She claims a file cabinet full of notes brings her more joy than a portfolio of investment properties. For many of us we are trying to figure out how to get as many doors as possible. Have any of you made a transition from owning a ton of properties, to private lending and wish you made it happen sooner in retrospect? Has being a lender proven scalable, more profitable, or given you a better quality of life over rehabbing or owning rental property? Do any of you really enjoy a hybrid of lending your own capital, while actively investing?
We also invest in notes. We do not originate but buy them on the secondary market. Primarily we buy non performing notes. We are very thankful we made the transition. Now thats not to say we do not own rentals, as we recommend a diverse portfolio, but our preference is notes.
7e investments53 Reviews - 4yBobby FeinmanBusiness MemberLender · VA Beach, VA · Member since 2019 · 914 posts · 91 votesDo you buy performing notes from private lenders such as myself?
Quote from @Chris Seveney:
Quote from @Jeff Joachim:
I had an interesting conversation with a private lender the other day. She informed me that she hates owning property. She claims a file cabinet full of notes brings her more joy than a portfolio of investment properties. For many of us we are trying to figure out how to get as many doors as possible. Have any of you made a transition from owning a ton of properties, to private lending and wish you made it happen sooner in retrospect? Has being a lender proven scalable, more profitable, or given you a better quality of life over rehabbing or owning rental property? Do any of you really enjoy a hybrid of lending your own capital, while actively investing?
We also invest in notes. We do not originate but buy them on the secondary market. Primarily we buy non performing notes. We are very thankful we made the transition. Now thats not to say we do not own rentals, as we recommend a diverse portfolio, but our preference is notes.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
Quote from @Bobby Feinman:
Do you buy performing notes from private lenders such as myself?Quote from @Chris Seveney:
Quote from @Jeff Joachim:
I had an interesting conversation with a private lender the other day. She informed me that she hates owning property. She claims a file cabinet full of notes brings her more joy than a portfolio of investment properties. For many of us we are trying to figure out how to get as many doors as possible. Have any of you made a transition from owning a ton of properties, to private lending and wish you made it happen sooner in retrospect? Has being a lender proven scalable, more profitable, or given you a better quality of life over rehabbing or owning rental property? Do any of you really enjoy a hybrid of lending your own capital, while actively investing?
We also invest in notes. We do not originate but buy them on the secondary market. Primarily we buy non performing notes. We are very thankful we made the transition. Now thats not to say we do not own rentals, as we recommend a diverse portfolio, but our preference is notes.
yes we buy notes from larger funds or individuals. We do not typically originate or do table funding though.
7e investments53 Reviews - Lender · Tampa, FL · Member since 2020 · 202 posts · 116 votes4y
@Jeff Joachim, I have been PL since 2014. I made my first loan while deployed with the US Army, on the side of a mountain in Afghanistan. This investment style is not geographically restricted, and once you build a solid base of repeat borrowers, you don't have to spend much time doing anything else but underwriting possible deals. You don't deal with the headache of the three "T"s (Toilets, Termites, Tenants) as well you legally take the most protected position in all of real estate investing. Your at the base of the capital stack (depending on which position you lend on) and you are able to shift the risks, and the liability to the borrower. Plus if the borrower defaults you get the property hopefully at a pretty nice discount. Happy to share my experience if this is something you serious about.
Another question is if you want to be an "Active" or "Passive" private lender. Yes there are differences and one is much more of a job (marketing/ processing/ underwriting/ servicing) while the other is much more passive (truly the purest form of "mailbox" money there is). I've been on both sides and I have helped investors expand into both sides depending on their goals.
- Investor · Orlando, FL · Member since 2013 · 99 posts · 69 votes4yThanks for sharing! What inspired you to make the transition from investor to full-time lender?
Quote from @Bobby Feinman:
Quote from @Bill B.:
Probably another landlord that had a bad experience and burned out.
I’d hate to be at the mercy of other people wanting/needing to borrow from me. It’s kind of like flipping. It’s a job you have to be constantly hunting for customers or your income dries up in 6-12 months when the notes are paid back. You can quit looking for new rentals, and live the rest of your life With what you have. You also get the appreciation and the tax breaks.
I understand people are scared of owning stuff, but being owed dollars isn’t “safer”. I bet the same number of private lenses were wiped out during the last recession as landlords. Except they were wiped out, riding through it with a house worth less than they owed wasnt an option.
Luckily. There are 100’s of ways to make money in real estate. And if they are happy, I’m happy for them.
Well said! I was an investor for 25 years before I became a full-time lender three years ago. Did a lot of fix and flip, was a landlord and a new construction builder for 17 of those 25 years
- Investor · Orlando, FL · Member since 2013 · 99 posts · 69 votes4y
Quote from @Edwin Epperson:
@Jeff Joachim, I have been PL since 2014. I made my first loan while deployed with the US Army, on the side of a mountain in Afghanistan. This investment style is not geographically restricted, and once you build a solid base of repeat borrowers, you don't have to spend much time doing anything else but underwriting possible deals. You don't deal with the headache of the three "T"s (Toilets, Termites, Tenants) as well you legally take the most protected position in all of real estate investing. Your at the base of the capital stack (depending on which position you lend on) and you are able to shift the risks, and the liability to the borrower. Plus if the borrower defaults you get the property hopefully at a pretty nice discount. Happy to share my experience if this is something you serious about.
Another question is if you want to be an "Active" or "Passive" private lender. Yes there are differences and one is much more of a job (marketing/ processing/ underwriting/ servicing) while the other is much more passive (truly the purest form of "mailbox" money there is). I've been on both sides and I have helped investors expand into both sides depending on their goals.
Awesome insight Edwin! I definitely will reach out to learn more about how you got started and were able to scale over the years. To add a little more perspective, the private lender and I were having a discussion about how she owned a few properties after doing deed in lieu of foreclosures with borrowers in default. Despite owning the properties at 50% of the After Repair Value, she still preferred to sell them at a deep discount rather than complete the rehab. It led me to wonder are private lenders making so much money deploying capital, that the opportunity cost of completing the rehab outweighs the benefit of completing the rehab. Understandably, everyone's situation is different than this one individual lender. I was just curious to hear from others that have made the switch from flipper/landlord to private lending if they found it to be more lucrative or enjoyable.
- Lender · Tampa, FL · Member since 2020 · 202 posts · 116 votes4y
As you stated I cannot speak to her reasons for selling at a deep discount, but one of the reasons a PL may not pursue going after a foreclosed property is the time commitment. Freedom of time is a real thing. And once you experience it its one of the best things in the world.
- 4yBobby FeinmanBusiness MemberLender · VA Beach, VA · Member since 2019 · 914 posts · 91 votesI was ready to make the transition back in 2007 when the crash hit. I’ve had friends that were hardmoney lenders that I’ve known for many years and I was impressed with their business model. Also, I became completely worn out as a new construction builder dealing with building inspectors and all of the red tape.
Quote from @Jeff Joachim:
Thanks for sharing! What inspired you to make the transition from investor to full-time lender?Quote from @Bobby Feinman:
Quote from @Bill B.:
Probably another landlord that had a bad experience and burned out.
I’d hate to be at the mercy of other people wanting/needing to borrow from me. It’s kind of like flipping. It’s a job you have to be constantly hunting for customers or your income dries up in 6-12 months when the notes are paid back. You can quit looking for new rentals, and live the rest of your life With what you have. You also get the appreciation and the tax breaks.
I understand people are scared of owning stuff, but being owed dollars isn’t “safer”. I bet the same number of private lenses were wiped out during the last recession as landlords. Except they were wiped out, riding through it with a house worth less than they owed wasnt an option.
Luckily. There are 100’s of ways to make money in real estate. And if they are happy, I’m happy for them.
Well said! I was an investor for 25 years before I became a full-time lender three years ago. Did a lot of fix and flip, was a landlord and a new construction builder for 17 of those 25 years
- Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes4y
@Jeff Joachim This all comes down to the person's lifestyle goals. Being a private lender or passive investor is far less time and responsibility. There is the argument as well, would you rather be hunting gold in the gold rush or sell the shovels?
At this point in the market, I'd say it makes a lot more sense for many investors to examine private lending or passive investing. There is much more risk at this point in the markets, especially for newer investors.
Yet, when I first started, I partnered with a private lender for 70% of the purchase price on two duplexes in North Carolina. This helped launch my real estate ventures in 2018. I can 100% say however, I did not make any money on that first deal while the private lender made out very well.
As it was a Class C property, I also had some sleepless nights, as well as many calls with property managers, contractors and utility companies over the life of the deal. I learned, so it was a good experience but the private lender slept soundly whilst making cashflow. :)
Depends on the person's goals.
Btw, Have you checked out the new Biggerpockets book https://store.biggerpockets.co... on private lending? Just release coincidently.
- Investor · Austin, TX · Member since 2022 · 40 posts · 30 votes4y
From my experience, I would rather be a private lender so that I don't have to deal with the day-to-day work. I have worked in property management, my family owns a remodeling company and I still don't want to do it! I hate to evict people too! I just want to do the happy part of the deal and make sure I have the right teammates that will do the work for me. It takes a lot of time and experience to get to be a successful private lender and to have the right team working for you though. So in the meantime syndication is the most preferred vehicle for me.
- Lender · Deerfield, IL · Member since 2020 · 44 posts · 31 votes4y
Lending is the new owning for me. My partners and I have been extremely satisfied with our decision to deploy capital as private lenders, rather than acquiring more doors. Our ROE is far higher than we would ever achieve as passive investors, and although it requires perpetual, active participation, it's been highly rewarding in comparison to our individual and collective experiences as real estate investors.
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
We've all seen threads here on BP about how many rentals you need to generate $100k annually, so one can quit their day job.
As a private lender, how much capital does it take to be able to make $100k annually and quit a day job?
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