You may have heard that becoming a private lender for real estate is a great side job or something to do after retirement. However, what exactly does it entail, and what are the risks? Take a look at this quick guide to becoming a private lender—whether you’re interested in it for money or something to occupy your time.
Before starting any business venture, you should always talk to an accountant. It’s easy to see private lending as a hobby instead of a business, but the IRS will think differently. Make sure you’ve got everything in order before any money changes hands. There is always a risk of losing everything you invest, so make sure you aren’t putting your personal finances at risk.
Take a look at what you need to consider when giving a private loan for real estate.
- Collateral: Do you trust the person you’re lending to? Keep yourself safe from untrustworthy borrowers by asking for collateral. This Guarantee is a promissory note. This means if we don’t repay you, you keep the house!
- Cash for advances: Some unexpected problems can occur during any real estate transaction. The property might need to be remodeled, or there could be a legal battle around property taxes or foreclosures. As a lender, you should make sure you’ve got extra cash available in case of unexpected expenses.
- Insurance: Does the property owner have fire or flood insurance? If a natural disaster occurs, you are still owed your investment. Make sure that you’re named on the insurance.
- Documentation: Make sure there is a paper trail of everything relating to your loan. If any problems arise, you want to make sure that they can be solved quickly. Having records of anything financial is always a great idea.
Are you interested in becoming a private lender for real estate? Contact Eagle Vision Homes today to learn more. We’re a reliable redevelopment company, and we’d love to work with you!