Brian Kline from RealtyBizNews.com recently wrote an article about the many ways to invest your private money. As he points out in the article, banks have fallen into the background of lending with stricter regulations and hesitation from the lending meltdown of 2008. While many investors may bemoan this new structure and the difficulty of finding amicable loans, savvy investors see this as an opportunity to leverage their self-directed retirement accounts.
There are many benefits of private money lending to both lenders and borrowers. Lenders are profiting from private money lending by capitalizing on the short life cycle of the loan, typically between six months and two years. The loans generate the maximum interest, generally between 8-12 percent and are repaid in full long before the principal is reduced. Lenders have a passive strategy that can earn large returns in short periods of time.
Borrowers can benefit because private money lending cuts out a lot of the red tape and intricacies of borrowing from a bank. Private money loans are typically granted within a couple of days, which critical for fast closings associated with distressed properties or those requiring cash payments. These loans often aren’t affected by the borrower’s credit rating. Lenders can afford to do this because the loan is secured by a tangible asset, the property and most loans do not exceed 75 percent of the after repair appraised value of the property.
Private money lending offers a unique opportunity for both borrowers and lenders. Faster closing, higher interest rates and a simplified process are just a few reasons why this investment strategy is growing in popularity. You can use the funds in your 401(k), pension or other retirement account to loan money by rolling it over to an self-directed account. The interest and earnings are returned to your account tax-free or tax-deferred, depending how you set it up.