I have some money to invest but just recently started thinking of being the "bank" instead. I've never looked into it so I don't know much about it from the lender's pov. All I know is I am interested in doing short term loans so I guess that would make me a hard money lender? Some questions I have are: • Would 3-6 month loans be feasible? • Can you make good money doing this if you consistently lend compared to owning a buy and hold prop? • Is this better or worse than buying and holding or can they not be compared? For my last question, the reason I'm wondering if you can compare the two is because I don't know if I should pick one over the other. I'd assume holding a rental property long term would be better for net worth over short term lending but maybe income is better as a lender? I don't know. I'm unsure if this decision would be based more on a "whatever fits your goals" kind of thing. I appreciate any and all feedback :) cheers

Ray you can still lend in CA you simply need a RE Broker to run the paper work for you so the state Is happy and they will usually want some sort of fee for their time and risk / effort.

After reading this thread, a few comments come to mind over this common A or B decision. Without knowing how much it is (no need to say) makes my advice (or more accurately, my opinion) more general in nature but here it goes: Lending has very little to no tax shelters whereas buy and hold does. Lending in the manner in which you are talking about in CA would require you to get licensed or use a license broker and therefore cost you 1-2 points which is less money that you can earn by doing it yourself as a broker. Now to the benefits of Lending - Lending can be more liquid and the cost to sell less. Lending can allow you to be more diversified and since it is short term, avoid getting caught in large downturns in the marketplace. Lending is way more passive than buy and hold. That all said, if the amount of the investment is great enough, my advice would be to do both. Use some for buy and hold (I personally would prefer apartments rather than buying a few single family homes) and some for lending/trust deed investing. In either category, you must know what you are doing, know how to vet the investment, how to vet the sponsor (if investing in a larger fund of some sort), the laws and regulations on the lending side, how to investigate which areas to invest in buy and hold and notes/trust deeds for that matter. So as you have already said several times, lots to think about . . .

@Jay Hinrichs always has some helpful tips/advice/observations. He was on one of the BP podcasts, because he's done, well, everything.

There's a lot of would-be investors in the Bay Area sitting on a ton of equity, but they have killer 3.5% interest rates from 2012 that they don't want to let go of. I've been trying to find some folks that would be open to developing it into what amounts to a 0% down investment property financing model. A lot of the time, the HML 2nd secured by the high equity primary residence would end up getting paid off in short order with via a HELOC, so there'd have to be points in it upfront for the HML for it to make sense. Not being in the hard money world myself, there's also a bunch of compliance stuff that would need to be worked through that I don't know about.

@Justin R. I wanted to buy a mid size apartment because of the scalability. But all good points. I'll look around at different syndications vs investing myself and just weigh the pros and cons for the current goals I have. I enjoy growing a business as well so I may do what you did but I guess I'll see :) thanks for the help!

@Ray Hernandez Just my personal opinion based on experience, but... Having one or two rentals is just ... annoying. Not enough current income to move the needle, but all the knowledge required to learn and, if you're self-managing, the always-present "the tenant could move/break/have problem any minute of the day" possibility. By the time you have 4, 5 ... 10 properties, it makes it worth the time to systematize and gets some meaningful current income. In short, if I just wanted to invest the money, I'd look into a syndication. That's where I pointed my sister. Since I enjoy the management and improvements and tools and growing a business, I chose to acquire my own properties. As for whether syndication is the "best way" ... it's totally whether the syndicator is good or not. Can be formal or informal. For example, friends and family have invested in my properties, which has been great for their needs - ask around your friends and acquaintances you already trust to see what opportunities are there.

@Ray Hernandez Totally, totally different experiences and not really comparable. Keep in mind lending enjoys none of the tax advantages of real estate, which makes a big difference. • Marginal. It's definitely a smaller market. • Yes, but it's work. IMO, only worth it if you have access to enough capital to scale your efforts, though. • Can't be compared. To do well in the lending game, in addition to controlling your risk and what others have mentioned, you need... (A) enough capital to satisfy the demand and (B) enough demand to put your capital to work. It's work to get these two to balance out - if working with small sums, I don't think it's worth it and I'd rather invest it more passively. Personally, I have found occasional private lending to be a good networking tool and lead generator for what I'm really looking for - properties I can develop. I'd rather participate in syndications than create a business of lending. Also note that lending has none of the tax benefits owning real estate has, which makes a big difference. Also, access to online HMLs is compressing the total returns as the market gets more efficient.

Becoming A Short Term Lender?

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

8y

@Account Closed absolulty I would in no way advocate second position or gap funding in any way.. for those that do not have extensive real estate and construction experience.

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Ray Hernandez

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Torrance, CA · Member since 2018 · 43 posts · 13 votes

8y

@J. Robert Santos Yeah I'd have to start purchasing re first then upgrade.

@Account Closed I don't have extensive experience so I'll make sure to stay away! I'll keep learning about buy and hold, syndication and lending.

Thanks for all the feedback, everyone!

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

8y

Originally posted by @Ray Hernandez:

@Will Barnard Thank you for your honest advice! Means a lot to me.

Yeah I can't believe I hadn't thought about the little to no tax advantages with lending. I was so focused on the liquidity of it.

I'm very interested in apartment complexes and have been trying to learn as much as I can about investing in them. That said, if you were in my shoes would you advise looking into syndications or trying to find deals to buy and hold myself? I have the time to try and find deals myself so that's not necessarily a problem. I don't mind if I'm not 100% passive. Just want some good returns.

But doing both does seem like a great way to diversify. I get the tax benefit of rentals and more liquidity of lending. Good idea. And yeah I have tons to think about lol. Thanks for giving your input!

Honestly, as sexy as it sounds to be active and go after them on your own, as a rookie, even with some book education, the real world can knock you on your azz so I would suggest going with a very experienced and proven sponsor. You won’t hit a homer most likely but you will be safer and then learn from the real world experience. Perhaps after that you can try one on your own or with a partner.

So then the trick is, which sponsor to work with. That itself is no easy task for someone without experience. So for that, I would recommend getting a referral from someone trusted, someone without an agenda and someone who is not getting paid to refer you to the sponsor.

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Michael Reyes

Real Estate Investor · Escondido, CA · Member since 2016 · 52 posts · 23 votes

8y

Hi J. Robert Santos , I see you’re in Austin. May I ask what your background is? I’m traveling to Austin this week on business. Looking to possibly meet up with someone local who knows the MF market. I have to fly out Wednesday afternoon, but have some availability in the morning. Thanks for your time. Cheers, Michael

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J. Robert Santos

Austin, TX · Member since 2018 · 7 posts · 4 votes

8y

@Michael Reyes, I hope you are well! Yes, I sure am. I own a business brokerage firm, Stratton Business Brokers, and am a commercial real estate agent at Commercial Market Exchange. What are you looking to do within the MF market?

Thank you

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Alina Trigub

Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes

8y

@Ray Hernandez

I would reinforce what @Will Barnard said above and try to apply this strategy to both options. If you want to try lending and do some buy&hold, then 1) find an experienced HML/Agency and lend through them a few times (they should be able to get you a decent return even after fees) & 2) leverage an experienced syndicator and join their deal as a passive investor - you can always learn about syndication through this "back" door if you will, while making some passive income and enjoying tax benefits of buy&hold investing.

If you'd like to speak about it further feel free to PM me.

Good luck!

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Ray Hernandez

OP

Torrance, CA · Member since 2018 · 43 posts · 13 votes

8y

@Will Barnard Sorry for the late reply, just getting over a cold.

Good point. I'm pretty inexperienced. Depending on how good the returns are when I find the right sponsor and I start to get a feel for everything I may or may not go out there and try finding deals myself. How passive syndication is is pretty amazing!

And I'll start looking for referrals. I'll have to ask around to find someone without an agenda.

@Alina Trigub Thanks for the info! I'm wondering whether I should try to find 2 great sponsors and invest between them instead of just 1. To compare the returns and diversify a bit. Or find 1 sponsor and invest a lot there and then try lending a bit. And thanks I'll be sure to pm you if I have any more questions, I usually do lol.

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Alina Trigub

Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes

8y

@Ray Hernandez Research multiple sponsors (at least 3 plus.) Invest with the one(s) where you believe the investment is solid based on your valuation and long term goals. [Solicitation Removed by Moderators].

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Jonathan Chan

Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes

1y

Quote from @Ray Hernandez:

I have some money to invest but just recently started thinking of being the "bank" instead. I've never looked into it so I don't know much about it from the lender's pov.

All I know is I am interested in doing short term loans so I guess that would make me a hard money lender?

Some questions I have are:

Would 3-6 month loans be feasible?
Can you make good money doing this if you consistently lend compared to owning a buy and hold prop?
Is this better or worse than buying and holding or can they not be compared?

For my last question, the reason I'm wondering if you can compare the two is because I don't know if I should pick one over the other. I'd assume holding a rental property long term would be better for net worth over short term lending but maybe income is better as a lender? I don't know. I'm unsure if this decision would be based more on a "whatever fits your goals" kind of thing.

I appreciate any and all feedback :)

cheers

This is a very old post, but bumping it to the top. I do short term lends as my main focus and it's been going well so far.

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Becoming A Short Term Lender?

Becoming A Short Term Lender?

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