Anyone that works in finance will tell you the immense power of leverage. Leverage is basically taking more money than you have to boost your profits in an investment. You can have someone either lend you money or invest in your venture and have more cash working for you than you can afford by yourself.
Using leverage like this works well for relatively stable investments like real estate. Buying a house and flipping it for a profit is more clear cut for most people than investing in stocks, bonds or commodities.
And the lender of choice for most people is a bank. The mortgage industry, however, isn’t what it used to be and after the last financial crisis banks have gotten pretty risk averse when it comes to making loans out to individuals.
Your chances of getting a bank loan may be reduced by certain aspects of your career and credit history and that’s where you may have to turn to private lenders.
What is Private Lending?
Basically, money lent in private to you by an individual instead of a bank is called private lending. This could be a close friend or a relative that gives you cash to put to use on buying a property for your family. But it could also be a private investor who wants to earn higher interest on their money or an entrepreneurial cousin who wants to join in the rewards of such businesses.
How to Find Them
The internet, in most cases, will help you find everything from private lenders to low cost conveyancing solicitors. If you want to reach out to family and friends, be well prepared for rejection. Also put a lot of effort into the pitch even if you want to show it only to your parents or close uncle.
You also need to keep an eye out for wealthy individuals with experience in this sort of money lending. You’ll need to do your research and make sure you are convincing enough to get people to invest in your idea. Don’t be afraid of rejection, because in this industry you can expect to get rejected all the time. But you only need that one ‘yes’ and you’ll be on your way.
How to Select the Best
If you look closely at the economics of the deal, you’ll see that it is very attractive from the lender’s perspective. This means the lenders in this field are plenty. You won’t struggle to find a number of private lenders willing to give you a little leverage to flip a house. But the trick is to find the best ones. here’s what you need to look for:
The best rates: Many investors are unrealistic with the rates they can expect on the investment. What this means is there could be a lot of people expecting 12% to 16% on their investment which is both dangerous for your finances and unrealistic in the current business environment.
Experience: Look for investors who’ve been doing this long enough to know the pitfalls and the best practices.
About the Author:
Bill Brown is an American content writer. He belongs to a money and finance expert family. His writing skills are descriptive and meaningful. He is currently working with Conveyancing 24-7. In his spare time, he loves to read money and finance news. His articles are both professional and creative.