For high net worth investors, real estate investing usually plays an important role in their investment portfolio. In the current real estate market, finding desirable real estate investments can be challenging. Navigating the process of buying short sales or foreclosures is time-consuming and frustrating and trying to find properties that aren't under water is almost as difficult.
An alternative to wading into those troubled waters while still participating in the real estate market is to participate in private money lending. Private money lending is a desirable investment alternative for real estate investors for a number of reasons:
Private money is secured
When lending private money, investors have peace of mind knowing that the loan they are making is secured by the hard asset of the real estate that is being purchased. In most cases the loan-to-value ratio will not exceed 65%.
Borrowers thoroughly scrutinized
Borrowers are screened to ensure that they first and foremost have the proper financial standing and creditworthiness. They also need to have a solid business plan in place to ensure that they are in a position to rehabilitate the real estate they are purchasing, increase its value and turn a profit on their investment. Most borrowers that utilize private money often times use it repeatedly for new projects as they close out previous loans. The more experienced and successful they are at working with private money lenders the better.
Private money yields are currently about 8%-10.5% This gives investors in private money a very solid return on investment--higher than most fixed income and equity investments.
Loan servicing is handled by third parties
One of the potential headaches in real estate investing can be collecting rents and the other activities that go into servicing the property. In private money lending, all of the servicing is handled by independent third party servicing companies. All of those companies are licensed, bonded and insured to provide both the investor and the borrower the utmost in protection.