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How to Become a Private Money Lender – What You Need to Know to Make It Work

Private money lenders are those that lend money to individuals or companies, and are not traditional lending institutions, such as banks and mortgage companies. licensed money lender This can be a lucrative business as interest can provide a nice income. However, it is not a business to just jump into. It requires training and ongoing knowledge to be successful.

To begin, sign up to take brokerage classes. There are several online licensing courses available, and becoming licensed adds merit to your business. Stay current by attending real estate, property management, escrow, and bank loan courses off line. This not only protects you as you are more likely to be successful if you are educated in what you are doing, but it makes it more likely to get business. The more education you have, the more trustworthy you are in a particular line of business.

Study the market and identify one or two key markets to focus on. This allows for focused education on your part. Being too diversified makes it hard to concentrate on the details of any one market, and can lead to disaster. Make loans secured by collateral, or assets that are owned by you. Remember that mortgage payouts are usually 15 to 30 years, so being diversified to the point that some smaller loans with shorter payouts can be made can be helpful. Also, do not loan over 75% of the value of the collateral. This is simply a security measure to help ensure minimal funds are lost if the loan goes bad.

Ensure the borrowers are financially solvent. This can be done by requiring financial information and working with real estate brokers. Also, check with the Credit Alert Interactive Voice Response System to verify credit rating. Only make loans to those that are solvent and have a history or repaying other debts.

Next, secure help from other professionals. Develop a relationship with an attorney familiar with private lending investments, and have them look over any possible deals. Also, obtain the services of a reputable title and escrow firm to handle the paperwork and details of any deals you make. Check in with them regularly to ensure they are moving along with your deals, and pay any fees related to work they do on your deals. This would be in lieu of requiring the borrower to pay these fees. Lastly, set interest rates similar to those of other lending institutions in the area so as to remain competitive.