When you start to save money and watch where every penny goes, your first instinct may be to assume that you will be forsaking a lavish lifestyle. But even though you have started to cut back on the wine, caviar, and designer couture, that doesn’t mean that you can’t make savvy financial investments that fit within a budget. Particularly if you’re hoping to start living like a “Budget Socialite,” these hard money lending agreements may be an innovative way for you to invest. The goal is to find a desirable niche that you can cover through these agreements before other people get to it first. With a little luck, ingenuity, and funds that are readily available to you, you can make the glamorous lifestyle a reality.
The first thing you should know is what a hard money lending agreement is and how they function. Basically, when you are offered one of these agreements, what you are getting is an agreement where a borrower is looking for a short-term loan to help cover the upfront cost of a project. They will be offering collateral in the form of property that can be financed due to the high degree of certainty that the project will result in profit in the near future.
So when do these types of agreements make the most sense? When a developer has a deal that just won’t come together without a short-term loan at a higher interest rate than what they would normally pay, then hard money lending could be an option for you. Typically, hard money lending agreements will have a higher interest rate than a traditional loan, but they will also carry additional costs that either the lender or borrower will take on. This means that lenders who understand these agreements can earn a higher fee for the work.
Although hard money lending agreements may sound like something that is better suited for a larger budget, they are actually a solid option for budget investors. Like any good investor, one of the keys is to play the odds and determine your risk profiles before you get too deeply involved in a project. If you are able to establish a reputation for being a reasonable and trustworthy lender, then you will be more likely to have these arrangements presented to you. The best way to do this is to try to focus on a certain geographic area in which you most enjoy investing. This way, you will have time to become familiar with the market and determine if you want to remain a part of the lender system in your place of residence.
This type of investment strategy may not be for everyone, and it’s important that you keep yourself covered if you decide to get involved in hard money lending agreements. Always be sure to engage the right legal representation before you begin your endeavors.
For more information on lending practices, you can visit Consumer Financial Protection Bureau.