The typical thought process behind investing is to gain possession of an asset with the hope of selling it for a profit sometime in the future. This idea is lost on many real estate investors, as instead of focusing on making money they focus on making deals. However, there are plenty of ways to make money in the real estate market. Instead of forcing deals with small margins, you can think outside the box and make your money work for you. If you are sitting on some capital looking to invest but can’t find any deals, you may want to consider loaning that money out and making your money work for you.
Many of the current real estate shows on TV portray the business as a zero sum game. You either make 50% profit on a deal or it is viewed as a failure. In the real world, this is far from the case. The bulk of your business will come from small returns on many deals and keeping your pipeline filled throughout the year. If you have the opportunity to loan your money out on a solid deal in a short time frame you should consider it, even if the returns are nominal. Of course, like everything else in the real estate business, you must do your due diligence.
When you are considering loaning your money, you need to look at the borrower and the property. The borrower taking the money may be squeaky clean and have a splendid track record, but if the property is a “dog” you will be trouble. Before you loan out any money, take the time to fully vet who is borrowing, the property and the proposed exit strategy. If there are doubts in any one of these areas, you should walk away. On the other hand, if everything makes sense to you it could be a chance to make extra money.
Loaning $70,000 to make $1,000 is not a good reward for your risk. However, if you can make say $5,000 on that money, now you are talking. You can make your money either through fees or by taking a percentage of the deal. There are many ways you can structure the deal, but it is important not to get too greedy or this could be a one-time deal where you may be able to start a relationship. If you can lend your money, even on a small scale, just a few times a year the profits you receive may be enough to fund a small purchase or some other project you have been putting off. At a minimum, this can possibly supplement your income when you are between deals and give you another prospective on how to make money in the business.
The real estate business will not always go as smoothly as it appears on TV. There will be times when you may be looking for deals and nothing seems to fit. Take these times to explore your own private money lending and making your money work for you.