Heard about the benefits of private lending, but not sure where to find the money to become a lender?
Here are 6 places to find funds.
Advantage #1 : Contrary to what many people think, the private loan is a safe investment, mainly for the following reason:
it is an investment that offers a guarantee! Indeed, if you lend money to a real estate investor who wants to make a flip, the money lent is accompanied by a mortgage on the building. Thus, the private lender is paid first and the investor’s profit comes second.
Advantage #2 : Have you ever heard of the return on a private loan?
Why sleep your money in GICs (Guaranteed Poverty Certificates 😉) which give you a return of 1.8% per year, when you can lend this money and obtain an annual return of 10% to 15% thanks to the private loan?
“Yes, it’s fine Ghislain, but to make money, it takes money, right? »
This objection has been thrown at me several times… And each time, my answer is the following: yes… and no. To make money, it takes above all creativity and knowledge.
There are several creative ways to raise the money needed to become a private lender. I recently interviewed my friend Me Luc Audet on the subject, who reveals to us that we always have a little more money than we think.
Here are the six methods it offers:
Method 1: put your cash to work
If you have sums of money that you are not using and which are giving you little return (or even none at all), why not use this money to make a private loan?
If you are already a real estate investor, but there are currently no properties to invest in, you may have cash that you could lend to other investors, for example to an investor who wishes to carry out a real estate flip .
At the end of the private loan, which can be very variable (a few days to a few years), it suffices to recover these funds as well as the returns, then to reinvest everything.
Method 2: use a line of credit
If you have a business, you may have access to a low-interest line of credit.
For example, Scotiabank offers a line of credit almost automatically when creating a new company. Why not enjoy it?
You could use this margin to lend money and thus become a private lender. For example, if you borrow into your line at 3% and lend the money at 15%, you automatically earn a 12% return on the money lent. It’s almost too good to be true!
Method #3: use co-lenders
You can make private lending a group activity by grouping together to collect the cash you want to lend. This creates a partnership .
For example, suppose you have a loan request for $300,000, but you personally only have $30,000 to lend, or 10% of the amount. You can partner with co-lenders, whose contribution would make up the missing $270,000.
The beauty of it is that you can agree on the shares of the return that go to each of the lenders. You could thus get a return of 40% on your $30,000 while the other co-lenders would only get 12%. Everything is negotiated!
Method #4: use love money
Love money is money from people around you who could lend you money on favorable terms.
Think of your father, your mother, your brothers and sisters, your neighbor, your co-workers, etc. Sometimes it’s enough to ask. Don’t be afraid to do it; the worst that can happen to you is to be told “no”.
The arrangement could be as follows: your relative lends you funds at a certain rate (for example 5%), you use this money to make a private loan and collect the interest (10% to 15%), then as As the private mortgage servicer, you keep the 5% to 10% excess interest. Another option would be to split 50-50.
Method #5: put your home equity line of credit to work
If you own a residential home with an outstanding mortgage that is less than 80% of market value, you could obtain a home equity line of credit and then use that line to make private loans.
Here, the principle is the same as in the second method. The trick is to charge a higher interest rate than what you pay with your home equity line of credit.
Method #6: loan your rrsps
Did you know that it is possible to lend your RRSPs to real estate investors in exchange for a good return? Not only is it possible to do this, but you also decide the interest (and therefore the return) you get. You can very well lend your RRSPs in exchange for an interest rate of 10% or even 15%, like any good private loan.
And if you want to learn everything about private lending, note that I have designed training available in virtual format that should answer all your questions. You can listen to it and re-listen to it as many times as you want.
Note that this training is just as interesting for the investor who wants to know how to make a private loan and lend his money, as for the investor who wants to do business with a private lender to borrow, for example, the sums required to make a flip.
