How To Earn A Whopping 10-12% On Your Money – Passively!

A client called me last week to let me know he wanted to get into the private lending business … and if we had any lending opportunities.

He was a veteran investor who owned multiple properties, but was ready to start diversifying into other types of investment strategies.

Plus, he had just gone through a tedious financing process and recently had to evict one of his tenants, so maybe he was also a little exasperated with ‘brick and mortar” real estate at the time.

For the most part though, I think he really just wanted to start diversifying his holdings into more “passive” income streams.  And being a private lender is truly one of the most hands-off investments you can be involved in!

Our company tends to have 2 types of Private Lenders:

*  Investors who don’t want the hassle of owning properties, and don’t like the idea of dealing with tenants, toilets, and all your other typical landlording hassles (although, having solid Property Management in place can virtually eliminate the so-called hassle for you … but we’ll discuss that at another time).

*  Investors who have been in the game for while, own a number of properties, and simply want to start diversifying their investments and “become the bank” (which is what the most wealthy investors seem to eventually evolve into).

Both have cash to invest.  And both like the idea of creating more passive income.  (Who doesn’t??)

But I still maintain that private lending isn’t for everyone.

So let’s take a quick look at some pros and cons, and I’ll leave it to you to decide if this is an arena you should be considering…

Pro’s of Private Lending:

  • High returns – Our Private Lenders earn 10-14% returns on their invested money.
  • Secured – Your loan is secured by a property with no more than 70% loan-to-value, which means there’s lots of equity protecting your position.
  • No Costs – The borrower pays all of the costs.
  • Immediate Recourse – If the loan goes into default, you have the ability to seize the property through foreclosure (which can oftentimes increase your overall ROI!)
  • Fewer Hassles – Being a Private Lender allows you to be in real estate, without the hassles of flipping or owning real estate.
  • Flexible Terms – We have loans for anywhere from 6 months, to 2 years, to even 5-10 years or longer.  You choose the term based on whatever your financial goals are.
  • Tax Savings – Your earnings as a Private Lender can be tax-deferred or tax-free, by simply utilizing a self-directed IRA or 401(k),

Cons of Private Lending:

  • Lack of Appreciation – While private lending does produce tremendous yields  (often better than many cash-flowing rental properties), it doesn’t go up in value the way an owned asset like a rental property does.
  • Not as Many Tax Advantages – Private Lending doesn’t have the same favorable tax advantages that owning property does, like being able to deduct mortgage interest or depreciation, and not being able to implement a 1031 exchange.
  • May Have to Foreclose – If the borrower defaults, you may have to foreclose and end up owning the property.  Yes, I know I mentioned this in the pro section as well … because it really does depend on how you look at it.  It’s a con if you think foreclosing can be one giant hassle, which it can be.  But it can also be a major pro, if you consider that you may end up with an asset that provides an even higher ROI than your private loan!

I remember laying out these pro’s and cons to another client of mine, and she was ready to cash in all her chips and do nothing but private lending!

Smart move?

Maybe.  For her.

Personally, I think you should be doing both.

Own property to take advantage of appreciation and tax benefits… and for the simple comfort of actually owning a brick & mortar asset.

And own some Notes as a Private Lender as well, so you can still earn high double-digit yields – with the fewest hassles possible.

I’m biased of course, but I honestly think these are hands-down the 2 best passive investments you can make right now!


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