Hard Money Lending to Build Wealth for Retirement

Since the economic crisis in the past few years more and more people are becoming disillusioned with the stock market, 401k's and other traditional investment vehicles. They're looking for a solution to their financial dependence that is both secure and provides high rates of return. Many people are under the misunderstanding that you must choose one or the other. Some are convinced that speculation and investing in things they don't understand or control is the only way to get high returns.

Hard money lending is the answer to all these concerns and misconceptions. Many people are confused with what hard money lending actually is, and some even equate it to sub prime lending. Although it's possible to use hard money lending in a speculative and insecure way in the hopes for higher returns, that is not standard. This form of lending is simply when an individual, as opposed to a bank or other large financial institution, provides funds for a real estate investor to purchase property.

There are many reasons why this form of investing is so secure. First of all, it is backed by a piece of real estate which should have built in equity. By choosing reliable and trustworthy real estate investors, who find great deals you are able to almost gaurantee that each property you consider has anywhere from 30-50% built in equity. Not only does this make the investor more likely to pay you, it provides you a large safety net if he doesn't.

Here's how it works- first you choose a loan to value ratio, which should be around 40-50%. That means that as the lender you'll only provide 40-50% of the home's value. Now the investor must come up with the rest of the money for the deal. If he should stop paying and you acquire the house, you could gain thousands of dollars in equity depending on the home's value and your LTV.

By choosing the investor, the LTV, and the interest rate you are allowed more control over your investment than almost any other form of investing. While real estate investing allows slightly more control, it is not as passive as hard money lending. With hard money lending all you need to do is provide the money, find a reliable investor, and collect your checks.

Some real estate investors have programs set up for their hard money lenders and pay them in monthly payments that are considered positive cash flow for the lender. Many even include equity participation as part of their program- meaning that when they finally sell the house they give the lender a bonus in addition to their interest rate.

If you are new to hard money lending there are many places to find trustworthy borrowers. This form of financing is very appealing to many investors and you should have no trouble at all finding multiple candidates. The competition will give you an opportunity to choose only the most quality investors who are trustworthy and follow through with their promises. When first starting out, it's a good idea to turn to investor clubs or other organizations in your area for references. Although since you'll be an independent lender you are not held to the same restrictions as conventional financing institutions, it's a good idea to develop your own criteria and stick with it!