Would you rather be a private lender or own rentals/rehab?

Question

I had an interesting conversation with a private lender the other day. She informed me that she hates owning property. She claims a file cabinet full of notes brings her more joy than a portfolio of investment properties. For many of us we are trying to figure out how to get as many doors as possible. Have any of you made a transition from owning a ton of properties, to private lending and wish you made it happen sooner in retrospect? Has being a lender proven scalable, more profitable, or given you a better quality of life over rehabbing or owning rental property?  Do any of you really enjoy a hybrid of lending your own capital, while actively investing?

Jeff Joachim · Answer

Awesome insight Edwin! I definitely will reach out to learn more about how you got started and were able to scale over the years. To add a little more perspective, the private lender and I were having a discussion about how she owned a few properties after doing deed in lieu of foreclosures with borrowers in default. Despite owning the properties at 50% of the After Repair Value, she still preferred to sell them at a deep discount rather than complete the rehab. It led me to wonder are private lenders making so much money deploying capital, that the opportunity cost of completing the rehab outweighs the benefit of completing the rehab. Understandably, everyone's situation is different than this one individual lender. I was just curious to hear from others that have made the switch from flipper/landlord to private lending if they found it to be more lucrative or enjoyable.

Chris Seveney · Answer

We also invest in notes. We do not originate but buy them on the secondary market. Primarily we buy non performing notes. We are very thankful we made the transition. Now thats not to say we do not own rentals, as we recommend a diverse portfolio, but our preference is notes.

Bobby Feinman · Answer

Well said! I was an investor for 25 years before I became a full-time lender three years ago. Did a lot of fix and flip, was a landlord and a new construction builder for 17 of those 25 years

Bobby Feinman · Answer

@Jeff Joachim

Awesome post! Another option is investing in a private lending fund. the investment is diversified over all of the loans in the portfolio without the headaches of ownership, maintenance, tenants, etc. It's a great way to be in real estate and "be the bank" instead of the owner with an attractive return.

Bobby

Drew Sygit · Answer

We've all seen threads here on BP about how many rentals you need to generate $100k annually, so one can quit their day job.

As a private lender, how much capital does it take to be able to make $100k annually and quit a day job?

John Morelli · Answer

Lending is the new owning for me. My partners and I have been extremely satisfied with our decision to deploy capital as private lenders, rather than acquiring more doors. Our ROE is far higher than we would ever achieve as passive investors, and although it requires perpetual, active participation, it's been highly rewarding in comparison to our individual and collective experiences as real estate investors.

Deanna B. · Answer

From my experience, I would rather be a private lender so that I don't have to deal with the day-to-day work. I have worked in property management, my family owns a remodeling company and I still don't want to do it! I hate to evict people too! I just want to do the happy part of the deal and make sure I have the right teammates that will do the work for me. It takes a lot of time and experience to get to be a successful private lender and to have the right team working for you though. So in the meantime syndication is the most preferred vehicle for me.

Chris Levarek · Answer

@Jeff Joachim This all comes down to the person's lifestyle goals. Being a private lender or passive investor is far less time and responsibility. There is the argument as well, would you rather be hunting gold in the gold rush or sell the shovels?

At this point in the market, I'd say it makes a lot more sense for many investors to examine private lending or passive investing. There is much more risk at this point in the markets, especially for newer investors.

Yet, when I first started, I partnered with a private lender for 70% of the purchase price on two duplexes in North Carolina. This helped launch my real estate ventures in 2018. I can 100% say however, I did not make any money on that first deal while the private lender made out very well.

As it was a Class C property, I also had some sleepless nights, as well as many calls with property managers, contractors and utility companies over the life of the deal.  I learned, so it was a good experience but the private lender slept soundly whilst making cashflow. :)

Depends on the person's goals.

Btw, Have you checked out the new Biggerpockets book https://store.biggerpockets.co... on private lending? Just release coincidently.

Edwin Epperson · Answer

As you stated I cannot speak to her reasons for selling at a deep discount, but one of the reasons a PL may not pursue going after a foreclosed property is the time commitment.  Freedom of time is a real thing.  And once you experience it its one of the best things in the world.

Would you rather be a private lender or own rentals/rehab?

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