Private money lending refers to the act of borrowing your own personal funds with the hope that you will be able to pay it back, sometime in the future. While secured personal loans are those made against an asset – such as jewelry – such as a home, the more popular type of private money lending occurs when people borrow their own money and use it to invest in the stock market, the real estate market, commodities, or virtually any other investment opportunity they see fit. This can be an incredibly risky venture, however, because even though the risk is low, there are no guarantees that the investment will pay off.
What is also nice about private money lending versus institutional lending is the fact that you don’t necessarily have to go through a broker or bank when going about it. There are many direct investing companies online and through the mail that are solely dedicated to helping people obtain the capital they need to make investments in the real estate markets and other areas. As mentioned above, the risks are great, but the rewards can be tremendous. In particular, private lending can really help someone who is interested in investing in the stock market or in buying distressed real estate deals in foreclosure. These are not always the easiest things to find, so this sort of direct lending can really come in handy.
If you are interested in getting involved with these sorts of investments, whether they be residential or real estate, you should keep in mind the two main things to consider when getting involved: liquidity and return. Remember, just because a borrower has good credit doesn’t mean that he or she will be able to get the private money lending they need – especially if they are in need of funding for something as speculative as real estate investing. On the other hand, those who are not so credit-worthy will have a much harder time securing the money they need. So, whether you are a homeowner or an investor, this type of private money lending can really make a difference between success and failure.