You may be thinking, “Boy, private lending sounds great and I’d love to participate.” You also may be thinking, “Boy, I wish I had more capital available to invest!” In today’s day and age a lot of investors that were once flush with cash and disposable income are saying the same thing. The average American isn’t very liquid as it’s become more and more difficult to save in rough economic times.
We already know who the major players are in a private money loan transaction, but it’s also important to know what role they play in the process of funding a loan and what they’re responsible for. In most cases, a company like MMG Capital will be watching over this process on your behalf, so many of the functions will be invisible to you. However, by understanding the pieces that make up the puzzle, you’ll become a better investor and prepare yourself to ask the right questions.
As was very common during the high point of the real estate market in recent years, hard money lenders will sometimes agree to make what is called a “junior lien.” A lien that is in second position or subordinate to a first lien is a type of junior lien, as is any lien that is further down the line – such as a third or fourth lien.
As we’ve mentioned before, the concept of private money lending isn’t a difficult one. However, actually doing it can be highly involved and tricky at times. Learning how to utilize private money lending takes time, but once you fully understand it, it becomes very easy to see just why private money lending and trust deed investing is such a safe, consistent, valuable tool in any investment portfolio.
Like any investment, there are certain risks that you need to be aware of and understand. However, what’s more important is that you understand how to nullify these risks. Most if not all private lending risks can be diminished or eliminated completely if you properly structure your loan transactions.
Conceptually, private money lending isn’t difficult to grasp. Chances are, you already understand the basics of a loan transaction. If you’ve ever purchased a home or a car, you’ve witnessed the essentials of the process. A lender agrees to allow a borrower to use their money for a specified purpose and period of time, and the borrower agrees to pay a specified rate of interest to the lender for the use of that money. In a secured transaction, the borrower also must provide the lender with collateral that can be liquidated or sold in order to repay the loan in the event that the borrower should fail to meet its obligations.
The choice to become a private money lender is quickly growing to be the popular choice for investment portfolios. The benefits of private money lending can be substantial when it’s done correctly, and more investors are beginning to realize that this fantastic alternative investment can produce safe, consistent returns – even in times when most other investments are failing to meet their expectations. Here’s how you too can learn about private money lending and start earning double-digit returns in your portolfio:
