There are many ways to diversify your investment portfolio, and one of the more popular options is through private lending.
However, there are myths that are holding investors back from taking their first step into real estate investing through private lending. Fortunately, these are just myths and can be debunked with ease, allowing investors to move forward in their wealth journey without hesitation.
So, here are some common myths about private lending that you can officially write off.
Those Who Obtain the Loans Aren’t Reputable
For many, private loans, such as hard money loans, are perceived to be a last resort or an “easy catch” for real estate investors who might not be able to secure traditional funding. This might lead lenders to think that they won’t see their money back, and that it is an unstable investment option.
However, hard money loans are simply another option for real estate investors to take advantage of when looking to conduct a fix-and-flip or rehab property project. Hard money loans are more accessible than traditional loans, but that is purely because the application and approval process is much faster and is based on the property, rather than the person.
Hard money loans provide a level of flexibility and speed that traditional loans can’t, so many investors gravitate towards them, not because they aren’t reputable, but because they want to move swiftly.
Private Lending Is Unregulated
There are some who see private lending as unregulated and operating outside regulatory oversight. This may introduce a level of risk and uncertainty when deciding where to invest your capital. However, that is simply not the case.
Private loans, such as hard money loans, follow certain guidelines and regulations. Depending on the state and lender, there may be specific compliance requirements that are not immediately apparent. Hard money loans are subject to legal and regulatory checks, never evading the law or guidelines set out by the state. It is essential to note that each lender may have its own set of rules for its loans; however, all transactions are regulated under law to protect those involved.
Private Lending Is Inherently High Risk
Compared to other investment options, private lending could be seen as a high-risk option. Many lenders might view it as such, as the market where their money is invested is volatile, and they are not directly involved with the properties where their money is being spent. Fortunately, that is not the case.
There is a high level of due diligence taken through the application process to ensure that those utilizing the loans are not a risk to the lenders. While interest rates might be higher to reflect the speed and flexibility of the hard money loan, the crux of the loan is dictated by the property and its value, ensuring that risk is mitigated on both sides of the transaction.
Private Lenders Are Sketchy
There is a misconception that private lenders are perceived as unethical or noncompliant, which can deter potential new private lenders from entering the industry. Thankfully, this is untrue. Private lenders are not sketchy or preying on their investors.
Private lenders must follow and comply with state and federal regulations. While each lending company may have its own underwriting process or guidelines, they are in place to protect both lenders and real estate investors. Lenders like KC Investor Funding are there to help all parties involved earn a profit while doing so in a safe manner.
Private Lending Is Difficult to Get Into
Dabbling in new investment strategies could be overwhelming and a little challenging at first. However, the misconception that private lending is difficult to get into is quite incorrect. If you wish to become a private lender with a company like KC Investor Funding, it’s as simple as reaching out.
All it takes is finding a lender that you can see yourself involved with. Take the time to learn about the company, including how they select applicants and their underwriting process, and determine if it aligns with your investment goals and risk tolerance. All you need to do is contact them.
So, if you are looking to become a private lender, contact the team at KC Investor Funding.