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While bridge loans are a non-traditional investment, the advantages of being an investor with a private lender are noteworthy:

While bridge loans are a non-traditional investment, the advantages of being an investor with a private lender are noteworthy:

  • Diversification: Private real estate lending offers true diversification for the investor. The rate of return is not affected by stock market whims, global politics, or even long-term real estate trends.
  • Collateralization: Investment funds are secured against freshly appraised real estate without requiring investor to purchase or manage rental properties. Typically a maximum of about 65% is loaned on the current or improved value of the property.
  • Profitability: Investors can earn proven, predictable rates without tying up their money for years (or decades) at a time. (Investors are typically offered a set rate somewhere between mid-single digits to low double digits, annualized, with no fee, though terms vary according to lender and individual deals.)
  • Control: Bridge loans have not been sold, re-sold, converted into stocks other investment instruments, and then packaged in bulk to hide deficiencies. These are simple, direct, secured loans that have been individually evaluated to protect both the investor and the company structuring the loan. Bridge loans have not been sold, re-sold, converted into stocks other investment instruments, and then packaged in bulk to hide deficiencies, as were the financial instruments that caused the subprime meltdown. Private lending borrowers are individually assessed and qualified, and investors are essential business partners that the private lender wishes to keep satisfied.

Research required. While putting money in a certificate of deposit or even an index fund mirroring a certain index may be somewhat simple, doing your due diligence is especially important with bridge loans.

While bridge loans are a non-traditional investment, the advantages of being an investor with a private lender are noteworthy:

While some investors put deals together and lend the money directly, we only recommend using the services of a proven, reputable company who finds, analyses, and puts together the deals. To find one, get referrals and recommendations, check references, and ask questions, such as:

For instance, if you discover that there are unrecorded liens or notes and your loan is forth in line on an already over-mortgaged property, you’ll end up with nothing

  • What position would your loan be in? (First position is preferred, because that means you’re the first to get paid in a sale.)
  • How much do they lend on the value of the home, or anticipated value, if improvements are being made? (We like to see no more than a conservative 65% of value.)
  • What happens if borrower defaults? Understand the next steps, which could include foreclosure.
  • Can you check references? (Don’t skip this step!)
  • Do they offer “too good to be true” results? (RUN, don’t walk, if they say you can earn 20% per month, 2% per day, or some such nonsense, even if your brother-in-law swears its real.)

If you are not already a professional real estate investor, we don’t suggest attempting making private loans yourself. To loan directly to a homeowner or contractor, you need to have an excellent understanding of real estate law (or a good lawyer) and property values (or a good appraiser). And the devil surely is in the details.

Time frame. Bridge loans and rehab loans are, by nature, a shorter-term strategy, often in the 6-12 month range. (Of course, that may work perfectly for some investors!) Then you’ve got to wait for another bridge loan or find someplace else to put your money. Ideally, you’ll be working with a company that you can do many transactions with over time.

Risk. As with almost any investment, there is an element of risk, especially if “Murphy” shows up. www.installmentloansgroup.com/installment-loans-nm What happens if something drastic happens to the house, the market, or the owner/contractor making the improvements on the home? In that case, the private lender goes to plan B. They have a lien on the home and are in an excellent position to collect on it. If necessary, they foreclose on the property and sell it to recoup the investment.

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