Is Private Lending a Good Investment in 2023?

Private money lending (or just private lending for short) has always been an essential part of the real estate ecosystem.

Real estate investors borrow money from private investors to fund short-term real estate deals, while the lenders enjoy a great rate of passive income and the capital security of the physical real estate the borrower puts up as collateral.

The question is; with interest rates rising, is private money lending a good idea right now?

Well, there’s always plenty to consider, so hers are my top 3 reasons to consider investing in private lending right now…

Don’t Miss Out: Join 5,000+ investors and get exclusive private money lending investments delivered to your inbox every Thursday

 1. The Risk Free Rate of Return

One important consideration for those with capital to invest or lend right now is the risk free rate of return.

This refers to the return one might receive on an investment with no risk of loss.

That includes assets like certificates of deposit that are insured with the FDIC, as well as government borrowing such a US Treasury bonds.

If one is able to return 6% from the US Government, or an insured bank deposit, that makes lending to Joe Blogs for a real estate deal less attractive – certainly when rates are comparable.

But that doesn’t make private money lending un-investable. Quite the contrary in fact…

In today’s environment of higher interest rates and restricted borrowing in general, private money lenders are cashing in.

The typical interest rate charged by private lenders for short term flip projects can vary from 12% to 15% in the current market.

At the same time, lower risk loans such as bridge loans and DSCR loans attract generous interest rates in the region of 8% to 10% p.a.

Start Lending Today: Choose from fully-vetted investor-ready private lending investments in the investor portal

 2. The Credit Crunch 2.0

We all remember the great credit crunch that started in 2007.

As banks and other lenders started to pull out of the market, credit availability plummeted, making it much harder for investors to borrow money.

This was fantastic news for private investors with available cash to lend who were able to step in and lend against good quality projects that could not find funding elsewhere.

Right now in 2023, we are experiencing a similar restriction of credit availability.

As banks and other lenders are being far more selective and restrictive in their lending, there is even more room for private investors to fill the gap and provide funding, while enjoying a value premium in exchange for access to capital.

What this ultimately means is that there are more deals to choose from, and as with any market, restricted supply (of credit) and increased demand favours the supplier – in this case the investor interested in private money lending.

Earn More Passive Income: Get instant access to lending investments paying 8% to 10% p.a.

3. Uncertain Markets

If there’s one thing markets (and investors) don’t like it’s uncertainty.

Uncertainty breeds volatility, and volatility means risk.

Right now, we have a heady combination of ever-changing Federal Reserve policy, a looming 2024 election, and a host of other factors that are driving uncertainty across almost all sectors and markets.

This uncertainty is creating a need for stability within investment portfolios, and well-structured lending against high quality projects with strong, experienced and capable borrowers is a great fit.

Become A Private Lender: Join 5,000+ investors and get private lending investment delivered to your inbox every Thursday

Conclusion

When all is said and done, when trying to answer the question ‘is private lending a good investment?’ there is an awful loot to consider.

While in the current environment private lending could be a great investment for those looking to boost their passive income and diversify their portfolios, at the same time it has never been more important to do your due diligence.

If you are going to take the plunge and invest in private money lending in 2023, make sure you find a good quality partner to work with, and look for quality projects that offer a reasonable blend of risk and return.