If you have cash to invest and want a better return than the bank and want to be more passive in your investing, you can consider lending your money to other property investors.
The easiest way to explain it is “You become the bank for somebody else.”
For property investors who need quick financing for auction purchasers or for a renovation, private finance or hard money can be a great source of funds.
You see, most private lenders get between 1% and 3% a month on their money, depending on the term of the loan. With loans of six months or more 1% to 1.5% is easily achievable and relatively low risk.
You can secure your loan on the property in question, and your investment is likely to be almost as safe as if it was in the bank, except you’d be making 5 to 10 times the return.
Many investors who become successful in property and make big lumps of cash, often lend money to other property investors as another stream of their multiple [property] income strategy.
It’s also a great way to ‘buy in’ great contacts and learn how to invest from people who are already doing it very well.
You can use some cash to partner with an experienced investor, shadow them, and learn exactly how they did it, whilst making money on your money.
You should very realistically and with low risk be able to make 12% a year using this strategy.
Here are the top reasons why we like private lending as an alternative income stream:
1) Property is a VERY secure investment.
You take a first charge on a property and have the ability to take the property back (in a worst case scenario). Plus the title deeds and the lenders interest is recorded on land registry so there is no misunderstanding.
2) Property is a tangible asset that has inherent value.
A company can go bankrupt with an ownership interest of zero. A property will never do that. It’s always nice to have the ability to touch, see, smell (well, maybe not smell) exactly what your money is invested in.
3) It’s ideal for investors who don’t want the hands-on-approach, headache and liability associated with owning a property. It offers a more passive option and an attractive alternative.
4) Private lending offers a much higher return than traditional investments and can add up to an annual yield of well over 15%.
5) Unlike traditional bank finance, private finance is typically only around 6 months or so.
This means it’s a great way to park your money, earn a great yield/ROI, AND yet have the ability to pull out the funds for a different project after a fairly short term.
We realised early on that private lending would be an excellent alternative investment strategy, particularly as owning property is not for everybody.
It allows an additional investment strategy in a diversified property investment portfolio.
Gill Alton has been both money lender and recipient of funds in the Progressive community. She loaned out a deposit to another Progressive community member at 8% per year, and borrowed from her parents at 5% per year.
As have Francis and Jane Dolley, whose £9,500 net cashflow per month has been leveraged by the funds they have borrowed and loaned within the community.
We often ‘bridge’ money to friends and business associates, and sometimes even act as money lenders to ourselves.
Perhaps, we’ll see You in The Sunday Times Rich List ?
What are your thoughts on private lending? Share below!