You Control Your Success, Even Though It’s Passive
One of the cool things about private lending on rehab deals, is that you don’t have to deal with the day-to-day headaches of rehabbing the property.
So in-essence, your investment is passive, meaning you can focus on whatever else you have going on in your life, without this taking-up a bunch of your time.
But just because it’s a hands-off investment, you still get control over the investment.
That’s because if you know how to properly screen potential borrowers, and abide by the rule of never lending above 70% LTV, you should have a really low chance of that borrower defaulting.
There’s ALWAYS risk involved, but just abiding by those two rules will reduce the risk tremendously.
Great Way to Learn the Game
We’ve worked with investors that went from knowing absolutely nothing about real estate, to knowing enough to buy-and-hold or fix-and-flip properties themselves.
When you find someone that knows what they’re doing, you can “learn the game” from your interactions with them during the term of your loan.
Related: The Secrets to Hedging Real Estate Risk on Flips
Cash Flow Without the Common Downsides
We all like the feeling of having cash flow coming in.
Depending on how the loan is structured, as a private lender, you get cash flow similar to what you’d make as a landlord.
On top of that, you make the short-term gains that a rehabber makes.
You get to bring in cash flow without:
- Having to deal with tenants. Tenants can be a pain to deal with, and you don’t have to deal with them, because you’re not renting-out a property.
- Having to pay a mortgage out of pocket, even on months where the rental property is vacant. If you financed the purchase of a rental property, you have to pay that mortgage each and every month; even when it’s vacant.
- Needing good credit; good luck financing a rental property without good credit.
- Needing to handle/administer the rehab yourself. Monitoring and dealing with construction crews takes a whole different skill set, and can be time-consuming and tedious. As the lender, you leave that up to the borrower, you don’t have to deal with it yourself.
You Can Pool Money/You Don’t Have to be Rich
Another good thing about private lending, is that even if you don’t personally have the money in your retirement or bank account to fund the rehab of a property, you can pool your money with others to fund a deal.
You can find local brokers that lend private funds to real estate investors that will pool the money for these kinds of loans from multiple people that are only able to invest smaller amounts of money.
And if you don’t want to go that route, you can take advantage of the Jobs Act, which makes it easier for entrepreneurs and real estate investors to get “crowd-funding.”