Most savvy investors are always looking for new ways to improve their current investment returns. There are a multitude of vehicles available for you to invest your capital; however, private lending allows you to maximize your investment returns in a safe and secure asset class – real estate.
Why Real Estate
Real Estate is a great investment in general because it is tangible and allows for leverage. If used correctly, leverage can maximize your returns and increase your net worth significantly. However, leverage is a two way street and if used incorrectly over-leveraging a property can diminish your returns and even cause you to loose money.
As a Private Lender you would be financing property well below its market value, giving you an extra level of security. Savvy Private Lenders finance up to 70% of the after repaired value (ARV), giving you at the very least a 30% equity position in any property that you would finance.
For example, if a distressed property in need of renovation would be worth $100,000 after all of the work is completed, the private lender would finance up to $70,000 that would be used to purchase and renovate the property.
Now, if you were the Private Lender on this transaction, you will finance the $70,000 for the purchase and repair of the property at a rate of 8% to 12% interest.
Not only would you have generated above average returns, your investment would be secured by a mortgage and note against the property. In the event that the investor did not pay you, you would be able to retain ownership of a $100,000 property for only $70,000, thus magnifying your returns.
Rule of 72
Hopefully, you can see how becoming a Private Lender provides you with above average returns consistently. You will be surprised at how these returns can have a dramatic effect on your net worth in a relatively short amount of time.
There is a concept called the Rule of 72, which states that if you divide 72 by your Return on Investment (ROI), you can determine how long it will take for your money to double.
For Example, using the Rate of Return of 8%, it would take approximately 9 years for your investment capital of $70,000 to double.
72 divided by 8% = 9 years.
Now if you use the Rule of 72 in order to analyze your current investments, you may be surprised by what you find.
For example, look at the amount of capital you have accumulated in a Certificate of Deposit or money market account. You may be lucky if you are generating 2% annual interest. By utilizing the Rule of 72, it would take 36 years in order for your capital to double.
Clearly Private Lending can afford you a better alternative to less effective investment vehicles, while still providing you with stable and secured returns.
David Scheuring is President of Pembroke Property Solutions, Inc., a professional real estate investment organization. More information is available at www.privatemortgagenow.com. Please send any comments or requests for more information to: info@privatemortgagesnow.com
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