Realty411 Magazine Featuring Lori Greymont | Page 45

to properties that have
strong appreciation poten-
tial, such as so-called “fix-
and-flip” deals or new con-
struction. However, when
this model applies, it can
increase the return potential
by adding an equity-based
component to the standard
interest-only model.
PRIVATE LENDING
FUNDS
While much of the private
lending activity is single or
multiple investors support-
ing a single borrower, there
is another model based on
an investment fund. In this
approach, a fund manager
organizes a collection of
investments from multiple
investors, and then uses
the pool of money in the
fund to make loans to
borrowers. Currently, there
are a variety of real estate
mortgage funds available,
with a range of investment
strategies including the
same ones described previ-
ously for individual inves-
tors. Investing in funds, or
mortgage pools, has both
advantages and disadvan-
tages relative to individual
private lending. One advan-
tage is that capital efficiency
is typically higher, since it’s
easier for a fund manager
to match their larger pool of
capital to particular
deals and thus keep the
funds more fully invested.
Another is diversification,
since funds from each
investor are distributed
across multiple loans.
Some investors may
find a disadvantage, in that
they like to review their own
loans and make their own
decisions about whether or
not to lend on a particular
deal. With fund investing,
those decisions are made
by the fund manager rather
than the individual. Of
course, for other investors,
having a professional man-
ager evaluate the deal is
actually seen as an advan-
tage.
Private lending can be a
great way to invest in real
estate without the hassle
of owning property, dealing
with maintenance issues, or
managing tenants. It focus-
es on the financial aspects
of real estate investing by
allowing individual investors
(by themselves or as part
of a fund) to essentially
become the bank and to
finance real estate transac-
tions using the security of
the real estate as collateral.
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