How much can an individual make private lending?

Question

let's say a young 23 year old male inherited a windfall of cash ( 1 million ) and wants to team up and use it to Hard lend , how much could be made? Would 100k a year be possible without too much risk ?

Account Closed · Answer

Account Closed

10% for private lending is very doable. I would eliminate the words "without too much risk" though as everything in real estate investing has risk. Even the best private loans will have a certain degree of risk.

As a private lender you would expect to take a Note and Deed of Trust (in Missouri) on the property and if the borrower ends up defaulting you would foreclose and take the property. It is a simplified example but also the reality of the lending business.

And @Jay Hinrichs is right you never want to do any owner occupant deals only investor ones.

Good luck!

Account Closed · Answer

Lending is a business in addition to an investment. You have more than just interest income and you also have expenses that not get covered. We do lots of Deed of Trust investments for our own accounts as well as manage liens/note for others, and average above the 10%  but like David C. points out, its all about turning your money.

Please feel free to call me if you want some advice on pitfalls to avoid and how to maximize your return.

Jay Hinrichs · Answer

easy that's only 10% return... many folks want to hit private money as they think its cheap money which it is in some cases.. but 10% would give you the cream of the crop.. just need to lend in states that do not require NMLS license.. 17 do the rest do not.

and NO owner occ at all or for Owner purposes

Account Closed · Answer

check out some of the crowdfunding sites you can make 10-12% on short term loans and spread it around over multiple investments to minimize  risks,patch of land, realty shares etc

Account Closed · Answer

Don't forget the money isn't lent out all the time, so your 10% is really less, how much depends on how aggressive you are in finding qualified borrowers.

Ian Ippolito · Answer

Zak, I was really troubled when I read your question and some of the responses. I am an investor like you, who also depends on my portfolio to produce my income. I'm not trying to sell anything or biased toward a particular type of investment.

If you haven't already, you really need to talk to a financial advisor. And make sure you don't pick one that gets paid via commissions on the things you buy. Those advisors will steer you to the highest paying commissions, which are often the worst investments. Instead, make sure that they are a fee-based advisor. That means you pay them a fee for the advice, and you know it's actually good, and not compromised with a conflict of interest.

They will tell you that if you want an investment with no risk, you can invest in US 30 year treasuries and make 3%. Or if you want no risk, put it into a CD ladder, and make around 2.5%.

To return anything higher than that will require risk, and the higher the return, the higher the risk. There are many good investments, including alternative investments like consumer loan crowdfunding (which has been returning me 7-9%).

And there are different types of real estate investments. If you invest in a diversified core real estate portfolio, it can be very safe, and return around 9.6% historically: http://www.therealestatecrowdfundingreview.com/#!why-invest-in-direct-real-estate/c73q

However, with only $1 million, it will be almost impossible to set up a properly diversified portfolio. Most people feel that real estate should not make up more than 10%-20% of a balanced portfolio. So if you only buy a few investments, and one of them goes wrong, it might wipe out all the gains from the rest, and even could put the whole real estate portfolio negative.

I have also searched for available businesses, like you, for two years. I evaluated hundreds, and found every one to be lacking in some fundamental way. I strongly believe that interest rates are so low now, that the good/strong business owners are waiting until they go up to sell. The only ones I could find available, are weak ones that are having severe troubles, and/or are hiding something. Just my two cents.

If you want any further advice, help, feel free to connect with me I'll be happy to.

Rick H. · Answer

Let's say you learn about the collateral first by studying real estate fundamentals.

I was exactly your age when I started. I'll be 60 next week.

Two things:

"A fool and his money are soon parted"

Why limit yourself to $100K/yr?

Dawn Anastasi · Answer

There's nothing inherently "wrong" with letting the money sit in the bank for a while until you have a good, solid plan on what to do with the money.  The worst thing to do is (well, other than gamble it all away or use it on drugs/booze) is to rush into something unprepared.

There are lots of ways to invest it:

- Stocks, bonds, mutual funds

- CDs, high-yield savings accounts (which really aren't that high yield)

- REITs

- Private lending for flips

- Private lending for buy and holds

- Do your own buy and holds with a property manager

- Partner for flips or buy and hold where you have an equity stake

Etc.

Account Closed · Answer

I appreciate all the advice , I'm at a crossroads to what I want to do with my inheritance . I have been looking at businesses on buybizzsell for a while and a lot of them seem almost too good to be true. I dont know which is riskier taking on a business that would produce a lot better return on my investment or putting it all towards real estate. I'm terrified of letting go of any of the cash I have acquired , maybe I'll let it sit in the bank forever .

Travis Sperr · Answer

Please work with a professional - I see people get burned all of the time, thinking they have all of the tools to be a private lender - we take calls weekly from people trying to figure out what to do on a deal they are a lender on that there is an issue with.

How much can an individual make private lending?

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