Invest as a property owner or private lender?

[Craig Hewitt]

A bit of a philosophical question here, but looking for anyone who's done some of the in-depth calculations of these types of investments. The question is if I'm just getting into real estate investing and have 100k to put into the market annually is the accumulation of wealth larger as a private lender or a property owner of SFH rentals.

I can't even imagine how to start calculating this, so I'm asking for some help with considerations. The question in my mind immediately would be what is the 'value' in terms of wealth creation of potential for appreciation of the underlying asset as a property owner in a long-term holding situation versus beginning to make a return on my investment now as a lender of money. The power of compounding interest sure would be on the side of the lender model, but there's no chance for capital appreciation over time. Would the compounding of interest over time make up the difference for the lack of appreciation? I live in an area that I do not expect to appreciate significantly over the coming years (at least in the markets I'm comfortable investing in), but is a stable market for mid tier rentals.

Thanks to everyone for making BP such a valuable asset. I just found the site a few weeks ago and have been hovering pretty regularly since then.

Interested to see people's insights on this topic.

[Kenneth Bell]

This is a pick your poison type situation. I have been on both sides of the equations. I think the answer lies in your strategy. If you are a lender rather conventional or hard money your only way to make money is with fees(points) or over time with interest. By nature hard money is not the type of financing that most investors seek to keep any longer than they need to, because it is so expensive. So depending on who is at the other end of the money you are lending if they are smart they will try to be out from under you as soon as possible. This could be a good thing if they are a savy investor and come right back to you again for their next property. A good flipper can have a property rehabbed and sold in 6 months or less depending on the complexity of the rehab. So for arguments sake you are charging 5 points on the front end and 12% to make the numbers easy. So on a 6 month flip, if you leverage the entire 100k you can make 5k in points and another 6k in interest payments. 11% return is not bad.If you managed to have the 100k out for a year then you could pocket 17%. Year over year most people would do cartwheels over those returns. A savy flipper however should be able to match those returns pretty easily. On the other hand a buy and hold or cash flow real estate investor would have a hard time reaching that return year over year, but in the long hall if he bought wisely and got himself from underneath your very expensive hard money terms he may see high double or even triple digit returns. My mentor taught me to hold property for wealth and flip property for cash it depends on what you need. If all you have to put into real estate is a 100k then I think a good return would be between 12-15%. If you took the same money and you were in the right area you could use the same cash, maintain a lot more control and make 20-30% on your money pretty easily. I dont know where you live, I know in some parts of the country you cannot enter the market very cheaply. Personally unless you have a lot more to leverage I would invest directly in real estate. Conversll if you could leverage your 100k to a LOC of say 500k then I may take a different approach...my long winded 2cents!!