Lending help for future investments

1 Reply

So if I was to lend money to someone how would I be able to get my money back plus some. I mean I don’t want to charge them up the butt but also want to make some cash on the deal as well. How do you guys lend to people? 

There's a lot involved in this, don't take the decision lightly. Is this a significant amount of money? Will they be using the funds for an investment opportunity, as a down payment for a primary residence, or are they just in a financial jam and need the cash? You'll want to underwrite the loan. I was going to make a post about how to underwrite loans soon. I'll hopefully get to it on Wednesday so that may help you. Through your underwriting, you'll want to understand how they will pay you back. What's the primary source of repayment; if the primary source fails, do they have a secondary source of repayment? Depending on the use of the funds, the last resort will call for them to sell an asset to repay you. You should take collateral of some sort that would be assigned to you if they don't pay you back. You'll want the personal guarantee from the borrower, and all of this needs to be described and executed by the borrower in a binding document. You will be taking on risk so you need to make make an educated decision on the likelihood they can pay you back. If your underwriting shows they probably can't repay you, you'll need to deny them. You shouldn't worry about charging them a high-interest rate, you are pricing this based on risk. If they don't qualify for a bank loan, it means there is likely a lot of risk you are taking on. I don't know the details so I can't say all you would want in place, but that's a brief description. If it's a family member or friend it complicates things even more and can ruin relationships. I'd start with a google search on how private lenders and hard money lenders make credit decisions. There should be plenty of information out there.