When selecting investment vehicles, many people care first and foremost about the return. They’re so concerned about percentages, that they will live with high risk in speculative investments. Many people get drawn into the stock market on the false perception that you must sacrifice security for high returns. On the other hand, many people also end up “playing it safe-” stashing all their money away in CD’s and money market accounts with pitiful 2% returns that may or may not beat inflation.
However, once educated on alternative investment vehicles, people learn that their is a middle ground. There’s a way to enjoy high 10-15% returns while minimizing your risk. The solution is private or hard money lending. Although real estate investing has traditionally been viewed as the sweet spot between low risk and high return, it does require work and a knowledge of the business some people don’t have. For this reason many real estate investors have decided to become hard money lenders instead.
The way it works is this- as a hard money lender you lend a percentage of an investment property’s value to a person wishing to buy it. They in turn, give you payments (generally monthly) with interest, instead of paying a traditional mortgage to a bank. As a hard money lender, you can enjoy several perks other than high interest rates and security if you set it up right. For example, many hard money lenders choose to receive their money in monthly payments- creating cash flow. They then use this money either to fund their retirement, loan out again, or save for the future. In addition to cash flow which is essential to retirement, many lenders choose to include equity participation in their deals. This means that when the real estate investor finally decides to sell the property, he’ll remember the lender and provide him a cut of the equity.
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