The Principle Behind Hard Money Lending

Capitalizing on the money that you have earned and saved from working for a number of years might give you an instant gratification of achievement and a complacent sense of assurance that gives you a reason to just lean back and relax. For most people, saving up for their insurance and retirement benefit is a safe way of just living out the remaining days of their lives, never having to worry about running out of money to support their finances and needs. Some might even spend a little out of what they have saved, as they earned the right for all the hard work that they put into it. Yet for some, saving for insurance and retirement purposes may be a logical move in regards to assuring them of a secured future, but found a better way of investing it and eventually, earning more than the interest rates that any insurance or retirement benefit policy can offer.

Although it does have risks like any other money related investment plan, venturing in any form of money lending financial business has a lot to offer in regards to a bigger potential of earning more at a shorter possible time. Hard money lending involves hard assets such as real estate and vehicles as a collateral in exchange for the amount that you will be lending the borrower. There are two methods in starting out with this, one that involves your own money and another that involves other investors. If you think that you have the sufficient financial capabilities to undergo this kind of money lending endeavor, it is best to know the details on how to go about diversifying your funds for this undertaking.

Your First Borrower:

For your part as a private lender, finding people in need of money is the least of your concerns as there are a lot of people out there trying to find someone who is willing to lend them money. As a lender, all you have to do is to give out the money to your potential borrower and wait. There are some important things to remember when lending out your hard earned money to people that you do not know. There should be some sort of collateral involved between you and your borrower which can be a vehicle or a real estate property. A contract of terms of agreement and conditions should be drawn up and filled in the presence of a public attorney which should be notarized in the presence of both parties. As for the collateral is concerned, any form of real estate property or vehicle that the borrower is willing to subject as collateral should be free from any liens and encumbrances. Any form of acceptable collateral should not be under any outstanding and existing obligations prior to acceptance it in which you can hold the borrower to their obligation to comply. A foregoing contract of an agreement to sell should be made and signed in the presence of a notary public in case the borrower defaults on their loan, giving you all the legal right to claim their property or vehicle.

The Legality of Lending Money on a Private Capacity:

There are some cases that private practice of lending money has sometimes caught the attention of government agencies, particularly the IRS (Internal Revenue Service). Giving a full description of your purpose of lending your money on a private capacity with the IRS might ease off a little bit of tax obligations on your part as some consider the act of lending money a tax deductible activity on your part and is considered a social welfare initiative that promotes social development in your community. You might incur some amount of fees on your venture in lending out money, but knowing the IRS, it is far more better to proclaim your outright intentions than be penalized for hiding it from them. Applying for the proper tax adjustments on your part would make things convenient rather than hiding it from them. Since you will be earning interest from the money that you lend your borrowers, it is just the right thing to do to let the IRS know your intentions, considering that you will earn more from the interest alone, much more than letting it sleep in some insurance policy or retirement plan.

Tendency to Become a Loan Shark:

Money is hard to come by and you know as well as I do that it is very hard to find people and lending companies that are more than willing to lend you the right amount of money that you desperately need. Most private lending companies know the disparity of such a need that they impose high rates of interest on the loans that they lend to people that it is sometimes more higher than prevailing bank rates. The trouble with conventional financing institutions such as banks is the strict requirements that they impose on their borrowers such as a good credit rating and other related information regarding your capacity to pay. This is a way for banks and other lending companies to reduce the possibility of making the mistake of appropriately giving out loans to people who can not comply with making regular payments with their obligations. That is why alternative means of lending out money by private individuals became a more preferred method as it only requires a very minimal amount of requirements in regards to applying for a loan. The convenience of not having to undergo numerous paperwork and other obligatory verifications justifies a private lenders often times more higher and barely reasonable interest rates and terms, but since there is nowhere else to go, you inevitably give in to that choice.





Basic Accounting:

As a private lender, it is best to know a little bit on how to become an accountant, and for more information, click here. Learning the basics of accounting will help you run your finance properly as you deal in calculating the appropriate interest rates that you will be giving your borrower. Always remember that interest rates are important because this is the amount of money that you earn from lending your own money. Keeping a constant and reasonable interest rate is one of the key secrets of being able to earn from this sort of business. Potential borrowers are often repelled by high interest rates that most private lenders impose on them. Keeping your interest rates reasonable along with reasonable payment terms can lead to these borrowers to keep on coming back to do business with you. Since there is not that much effort on your part as a lender and that there is a collateral on the borrowers part, it is fair to say that you can earn a reasonable amount of interest from the money that you saved by just waiting for the interest to come in as your hard earn money earns for itself.