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Private lending is an alternative for individuals who are not able to meet the requirements, or time restraints, of a conventional lender. Private loans are usually secured by a first lien position of real estate and/or a personal guarantee from the borrower. There are many advantages to partnering with a private lending company. Private lending offers high returns on a more consistent basis than most investments.
wo key factors
Evaluating risk for a private loan should be conducted when deciding if private lending is the best investment opportunity. The two key factors that should be analyzed are the collateral securing the loan and the borrower. A private lending company should secure a first mortgage lien position at a comfortable LTV (loan to value) typically 50-75%. They should also obtain a guarantee from a borrower with an acceptable credit.
Earn profit from the real estate industry
Self-Directed IRAs are a great way for investors to earn profit in the real estate industry. Two primary ways to gain profit from real estate are debt investing and equity investing.
Self-Directed IRAs require an investor to invest in a real estate transaction that is non-recourse. In other words, the lender’s only recourse is to take the subject property back; the lender cannot take additional assets from the borrower (the IRA). A key factor to take note of is that if an investors signs a personal guarantee on debt the IRA can be disqualified.
Due to the recourse involvement in most investment opportunities for real estate purchases, debt investing is an attractive option. Many owners of self-directed IRAs choose to partner with a private lending company because loans provide income guaranteed by the borrower and avoid the requirement of trying to secure a non-recourse real estate equity investment.