How much can an individual make private lending?

16 Replies

let's say a young 23 year old male inherited a windfall of cash ( 1 million ) and wants to team up and use it to Hard lend , how much could be made? Would 100k a year be possible without too much risk ?

easy that's only 10% return... many folks want to hit private money as they think its cheap money which it is in some cases.. but 10% would give you the cream of the crop.. just need to lend in states that do not require NMLS license.. 17 do  the rest do not.

and NO owner occ at all or for Owner purposes

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

@Account Closed

10% for private lending is very doable. I would eliminate the words "without too much risk" though as everything in real estate investing has risk. Even the best private loans will have a certain degree of risk.

As a private lender you would expect to take a Note and Deed of Trust (in Missouri) on the property and if the borrower ends up defaulting you would foreclose and take the property. It is a simplified example but also the reality of the lending business.

And @Jay Hinrichs  is right you never want to do any owner occupant deals only investor ones.

Good luck!

Don't forget the money isn't lent out all the time, so your 10% is really less, how much depends on how aggressive you are in finding qualified borrowers.

Lending is a business in addition to an investment. You have more than just interest income and you also have expenses that not get covered. We do lots of Deed of Trust investments for our own accounts as well as manage liens/note for others, and average above the 10%  but like David C. points out, its all about turning your money.

Please feel free to call me if you want some advice on pitfalls to avoid and how to maximize your return.

I appreciate all the advice , I'm at a crossroads to what I want to do with my inheritance . I have been looking at businesses on buybizzsell for a while and a lot of them seem almost too good to be true. I dont know which is riskier taking on a business that would produce a lot better return on my investment or putting it all towards real estate. I'm terrified of letting go of any of the cash I have acquired , maybe I'll let it sit in the bank forever .

Zack,

While i think private lending is a geat investment (and a safe one since you hold the note) I'm a firm believer in "don't put all your eggs in one basket."  I would consider investing half in private lending and allocating the rest across other investmemt vehicles to diversify in the event the real estate market took a dip in the short term.

Brian

Zack

Being a hard money lender is not without its downside. Remember that you are lending to individuals that cannot borrow from more conservative lenders hence you are by definition not conservative as a hard money lender. Knowing how to underwrite a deal is a combination of knowledge and experience. I would highly recommend that you spend sometime working with a lender before investing your own funds. Rainy days happen and knowing how to deal with those problems is how to avoid losing money. Take your time, there is always another deal.

Zack,

I'd say realistically you should be able to earn more in the 15%+ return rate as a hard money lender.   However it's not going to come without work.  You will have to put quite a bit of time into doing your due diligence to make sure the deals make sense.

If you would be happy with ~10% returns, I think there are several options you could look into that would get you that range and be a lot more passive investments.   If your interested in this, let me know, I can put you in touch with a few different people.

Though as Brian said, I wouldn't put all your money in one area, it's always good to diversify.

Steve

Originally posted by @Account Closed :

I appreciate all the advice , I'm at a crossroads to what I want to do with my inheritance . I have been looking at businesses on buybizzsell for a while and a lot of them seem almost too good to be true. I dont know which is riskier taking on a business that would produce a lot better return on my investment or putting it all towards real estate. I'm terrified of letting go of any of the cash I have acquired , maybe I'll let it sit in the bank forever .

 There's nothing inherently "wrong" with letting the money sit in the bank for a while until you have a good, solid plan on what to do with the money.  The worst thing to do is (well, other than gamble it all away or use it on drugs/booze) is to rush into something unprepared.

There are lots of ways to invest it:

- Stocks, bonds, mutual funds

- CDs, high-yield savings accounts (which really aren't that high yield)

- REITs

- Private lending for flips

- Private lending for buy and holds

- Do your own buy and holds with a property manager

- Partner for flips or buy and hold where you have an equity stake

Etc.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Why not owner occupieds? I know a number of HML's that still do them. I know some of the ones that stopped, did so over Dodd-Frank stuff but I haven't paid much attention in the last few years. I was under the impression that (at least here in Colorado) as long as you were lending your own money you didn't get caught up in a lot of the DF problems. Not saying anybody is wrong about not lending on OO's but just curious.

Originally posted by @Account Closed :

let's say a young 23 year old male inherited a windfall of cash ( 1 million ) and wants to team up and use it to Hard lend , how much could be made? Would 100k a year be possible without too much risk ?

 Let's say you learn about the collateral first by studying real estate fundamentals. 

I was exactly your age when I started. I'll be 60 next week. 

Two things:

"A fool and his money are soon parted"

Why limit yourself to $100K/yr?

@Bill Hamilton I have been to a couple of class on Dodd-Frank and done quite a bit of reading on it. I'm not an expert but I've never heard of being exempt from it if you are lending your own money to owner occupied. I would agree with @Jay Hinrichs - No to Owner Occupied loans of any kind. Stick with investors.

Medium rre 1to1 small sizeBill S., Reliant Real Estate, Inc. | 720 207‑8190

Zack be very careful.

Just because some people are BP members does not mean they are 100% in the up and up.

When posters come on here saying they have money and don't know what to do with it you will sometimes get contacted by people trying to solicit.

People tout diversity but you can be diversified into 3 things you know little about and still lose all your money.

So diversified or not is just one component.

I understand about buying a business. I had looked at that myself as I was in the restaurant business before years ago.

Cash flow looks high but you are running a business with a ton of hours worked. The workers pushing for minimum wage at 15 an hour could eat away all your anticipated higher returns.

If I can get 15% returns passively then to do a business and run it the return would have to go 25% or higher. If not I do not work for additional smaller yield bumps. The extra work for another 2 to 3% return annually isn't worth it.

Be smart with your money. Now at 1 million you would want good returns but smart and safer growth. Ultra risky investments should be at maybe 50k or less at a time in this way you do not take your whole worth down but as an example might could recoup that lost cost in a span of 6 months or so with other investments if it doesn't work out.

My clients that have 5 million they do not care about higher,riskier returns. They are happy to get 15% and grow slowly. Inflation is about 3% and so when you have millions if you live conservatively you tend to have more than you need.         

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

check out some of the crowdfunding sites you can make 10-12% on short term loans and spread it around over multiple investments to minimize  risks,patch of land, realty shares etc

Please work with a professional - I see people get burned all of the time, thinking they have all of the tools to be a private lender - we take calls weekly from people trying to figure out what to do on a deal they are a lender on that there is an issue with. 

Medium pinefinancialgrouplogoTravis Sperr, Pine Financial Group | [email protected] | 303‑835‑4445 | http://www.pinefinancialgroup.com

Originally posted by @Account Closed :

I appreciate all the advice , I'm at a crossroads to what I want to do with my inheritance . I have been looking at businesses on buybizzsell for a while and a lot of them seem almost too good to be true. I dont know which is riskier taking on a business that would produce a lot better return on my investment or putting it all towards real estate. I'm terrified of letting go of any of the cash I have acquired , maybe I'll let it sit in the bank forever .

 Zak, I was really troubled when I read your question and some of the responses. I am an investor like you, who also depends on my portfolio to produce my income. I'm not trying to sell anything or biased toward a particular type of investment.

If you haven't already, you really need to talk to a financial advisor. And make sure you don't pick one that gets paid via commissions on the things you buy. Those advisors will steer you to the highest paying commissions, which are often the worst investments. Instead, make sure that they are a fee-based advisor. That means you pay them a fee for the advice, and you know it's actually good, and not compromised with a conflict of interest.

They will tell you that if you want an investment with no risk, you can invest in US 30 year treasuries and make 3%. Or if you want no risk, put it into a CD ladder, and make around 2.5%.

To return anything higher than that will require risk, and the higher the return, the higher the risk. There are many good investments, including alternative investments like consumer loan crowdfunding (which has been returning me 7-9%).

And there are different types of real estate investments. If you invest in a diversified core real estate portfolio, it can be very safe, and return around 9.6% historically: http://www.therealestatecrowdfundingreview.com/#!why-invest-in-direct-real-estate/c73q

However, with only $1 million, it will be almost impossible to set up a properly diversified portfolio. Most people feel that real estate should not make up more than 10%-20% of a balanced portfolio. So if you only buy a few investments, and one of them goes wrong, it might wipe out all the gains from the rest, and even could put the whole real estate portfolio negative.

I have also searched for available businesses, like you, for two years. I evaluated hundreds, and found every one to be lacking in some fundamental way. I strongly believe that interest rates are so low now, that the good/strong business owners are waiting until they go up to sell. The only ones I could find available, are weak ones that are having severe troubles, and/or are hiding something. Just my two cents.

If you want any further advice, help, feel free to connect with me I'll be happy to.

Medium oneIan Ippolito, The Real Estate Crowdfunding Review | http://www.therealestatecrowdfundingreview.com/