5 Compelling Reasons Why This Is A Favored Investment of the Rich
I remember talking to a friend several years ago about a great real estate deal I thought he should consider…
“It’s a duplex in an up-and-coming area where young professionals are flocking to… the rental market there is strong… your annual ROI just from rents is close to 12%... it doesn’t need any work… and you can buy it right now for about $20k below market!”
I was pretty excited.
But he reacted like I was talking about going to the dentist or something.
“What if the water heater goes out?” he asks.
“Or the plumbing backs up.”
“Or they damage the property?”
“A friend of mine at work has a rental property, and he just had to evict his tenants. They didn’t leave the property in very good shape either, so he’s looking at about $8,000 in repairs.”
“Those are definitely some of the risks of owning rental property”, I respond. “But there are definite ways of minimizing your risk.”
And I go on to describe things like picking the right area, analyzing your numbers correctly, buying right, tenant selection strategies, and how to hire the right property management company to make it a totally hands-off investment.
But none of it was registering.
He had his mind made up… and I might as well have been talking to a wall.
So I stopped trying to convince him.
Instead… I started pivoting him towards another way of making money in real estate… without having to own the real estate.
Because I knew he was frustrated with the returns he was getting in the stock market and with his mutual funds.
“Ok, you obviously have your mind made up, but what if there was a way for you to still make hefty returns in real estate, without you having to be a landlord?” I ask.
That’s when his eyes lit up. He did have a pulse after all!
Anyway, those were the beginnings of him eventually becoming one of our Private Mortgage Lenders.
And if you’re not familiar with what that is, it’s basically a way for investors to earn a passive income in real estate, without the responsibility of ownership. You basically become the bank for someone else who owns the real estate.
So instead of Joe Investor going to Bank of America for the money to buy or fix up a property, they go to Bank of You.
For an investor who needs quick financing for an acquisition or renovation, private money can be a great source of funds. And for someone looking to take a more passive role in real estate investing, private mortgage lending can be a very secure way to get amazing returns while participating in the real estate market.
Win/win all the way around!
Personally, it’s one of my all-time favorite ways to invest. Yup, even though I love brick and mortar real estate and believe everyone should own some actual property, becoming a private lender is an amazing way to invest as well.
If you can, I think you should be both: A landlord…. AND a loanlord!
Anyway, let’s get back to the benefits of being a Private Mortgage Lender…
Here are the top 5 reasons why Private Mortgage Lending has become a favored investment of the rich:
1) Your investment is secured. Lenders take a first lien position on a property and have the ability to take the property back in case of default.
2) No tenants or toilets to deal with. Remember, you’re a lender and not a landlord… just like Bank of America. That means you don’t have to worry about things like replacing the carpet… or fixing a leaky faucet… or chasing down tenants because their rent is late.
You’re a loanlord, not a landlord!
3) You earn higher rates of return. As a Private Mortgage Lender, you can earn 8-12 times MORE than what the banks are paying!
Let’s take a look at some numbers just to illustrate how big of a deal this is…
Let’s say you have $50,000 sitting in a Bank CD earning you 2% per year (sadly though, the average CD is actually paying less than 2% right now!)
In 10 years, your Bank CD will be worth only $60,949.72. That’s only an $11k gain… in 10 long years.
What if that same $50k was in an investment earning you 10% instead?
Now you’re looking at a new balance of $129,687.12… a whopping difference of $68,737.40, just by applying a simple money movement strategy!!
4) Varying loan terms available. Some investors prefer velocity and like the idea of short-term 6-12 month loans where they’re in and out of deals all the time. Some investors like the idea of securing and locking down returns for 3, 5, or even 10 years or longer so they don’t constantly have to find new opportunities … and can just “set it and forget it”.
Whatever your financial objectives or circumstances, you can always find a loan term that fits your goals or temperament.
5) Perfect investment for your self-directed IRA or 401(k). Now you don’t need one to be a Private Mortgage Lender, but if you happen to have one (or want to set one up), this type of investment is ideal because they tend to be more passive in nature and easier to manage than rental property.
In order to do this, you would just need to have your IRA or 401(k) set up with a self-directed administrator.
A simple search on Mr. Google will pull up a whole slough of options for you.
(Copyright IR Press, Inc.)