Let’s talk about how to make money by lending money as a private investor for real estate investors.
Granted, there’s more to it than what I’m going to share today.
Matter of fact, before we get into the meat-and-potatoes of it all, check out this video I made.
It’s all about how to make money safely in this business, while MAXIMIZING your profits.
Today, I’m going to do my best to give you a high-level view of some things to keep in mind if you’re considering getting involved.
Also, understand that there’s multiple ways to lend money in the real estate realm. Today, I’m just talking about the process of lending money to experienced real estate rehabbers to buy, rehab, and resell properties.
Related: Can You Make Money Flipping Houses in this Market?
How Much Money Can Be Made?
You can make anywhere from 6%-to-15% return on investment. Depending on the deal, you can make upwards of 20%.
I get more in-detail on the benefits of private lending in another post, so I’m going to go straight into a high-level view of the process of lending and protecting your money on these kinds of investments.
How Do You Get Your Money Back?
Other than how much money can be made, this is usually the second question, so I wanted to cover this early in the post.
There are several safeguards you can take to make sure you get your money back.
In my opinion, the biggest one is to make sure the potential borrower knows what they’re doing. Before you lend them one dollar, make sure they have a solid plan on what they’re going to do with the money.
Related: The Secrets to Hedging Real Estate Risk on Flips
You need to meet with them and make sure their plan addresses the following concerns:
- What is their exit strategy? In other words, what action needs to take place in order for you to get your investment and profits back?
- What is their backup plan, in the event that the initial exit strategy falls-through?
- What kind of properties do they plan on (or currently) rehab?
- Is there a demand for properties in the area where they are planning on rehabbing in?
- How do they select their general contractors? What plan do they have in-place for monitoring and managing the contractors?
- How do they go about assessing the work that needs to be done to properties? Do they have a professional inspector confirm what needs to be done?
- What is their procedure for confirming the after-repaired value of the subject property?
- How will they keep you abreast of the progress of the rehab project? Phone calls? Emails?
I could go on-and-on, but these questions give you an idea of what to lookout for when you’re interviewing a potential borrower.
Questions like these are crucial, because they impact when you get your money and returns back, if at all.
Related: How to Hire the Best General Contractors