There’s plenty of information available on the internet about investing in hard money loans, so it’s generally safe to assume that most investors have heard of this popular strategy. It goes by a lot of different names, including: Trust Deed Investing, Being the Bank, Private Lending, Secured Lending and many others. Unfortunately, a lot of the details and even some of the basic philosophies that make this investing strategy so powerful in today’s marketplace tend to get lost behind the message that these investments generally feature high yields (8 – 15% depending on the circumstances). Nobody’s going to complain about the possibility of earning these types of returns, but is that really why investing in hard money loans is a good decision? After all, junk bonds and penny stocks promote the potential for high yields too, but smart investors aren’t scrambling to scoop those up. So, it must be something else that makes investing in hard money loans attractive. Let’s examine a few of the reasons why investors are loving this popular investment vehicle:
Wise investors always have a Plan B
The security that hard money loan investments offer is by far their most important feature. Security means that your investment is backed by, supported by, linked to or kept safe by a piece of valuable collateral. It’s often helpful to think of investing in a secured loan as “having a Plan B.” When you make a loan to a borrower, your investment is really a bet that your borrower is going to make monthly payments and then eventually return your principal. You’re investing in a contract – an agreement to receive a specified return for the right to use your money for a period of time. The real estate that the loan is secured by is your Plan B. Should your borrower not abide by the contract that you’ve invested in, you have another means of recovering your investment. Namely, you have the right to liquidate their asset(s) to pay yourself back. There are very few investments available of any kind that offer this type of investment structure. The ability to protect yourself is by far the most important aspect of any hard money loan investment.
When you buy a share of stock you don’t get control of a company. You bought the right to stand back and watch someone else make or lose you money. When you buy a corporate bond you buy the right to collect cash flows based on terms that someone else has set. When you invest in hard money loans you call the shots and make the rules. If borrowers don’t want to play by your rules then you don’t have to lend them any money – plain and simple. You have the opportunity to assess the situation, create loan terms that mitigate your risk, and obligate your borrower to meet certain requirements that you dictate. If they don’t, you generally have the right to seek recourse.
Investing in hard money loans produces regular income. In a time when cash flow is tight and many investors are looking for a regular paycheck to supplement other lost income, secured lending provides an excellent solution. If hard money loans are structured properly, they can provide a safe, consistent, monthly income to their investors for years.
For most investors, shelling out large chunks of cash to buy foreclosure properties or to invest in real estate just isn’t a good fit. It requires larger amounts of cash and carries considerably more risk and responsibility. Investing in hard money loans is an attainable solution for almost everyone that has a little bit of cash to invest. There is a multitude of borrowers in the marketplace looking for capital and absolutely no shortage of demand for loans.
These are really just some of the reasons why investing in hard money loans is beneficial for investors today, but they’re also some of the most important. Safety, security and consistent income are all rolled into this single investment vehicle, and investors have definitely taken notice.