By Greg Herlean
When you first get into house flipping, it can be a real hands-on experience, and you can feel like your income is very active. At this point, as you learn the ropes, you’re going to be taking on a lot of the tasks that you’ll later farm out to your employees, like hunting for leads and going to auctions.
At this point, most of the new real estate investors I know have more energy and passion than they have money, which is why they put in the sweat equity on their flips and use private loans for their capital. That’s great, but as you start to grow your business, at some point you’re going to find that you’re in the position to invest in more than just your own flips. If you really want to grow your wealth, your reputation and your house-flipping business, I highly recommend becoming a private lender.
Add an Income Stream
The first reason you should consider becoming a private lender is that it’ll add a new income stream to increase your net worth. While you’re working with investors (and probably using some of your own capital, as well) to get funding for your house -flipping business, you can also add repayments with interest from private loans to your revenue. More income streams mean more diversification and stabilization for your portfolio, which can do a lot for your wealth accumulation.
What’s the Worst That Can Happen?
As a private lender, if the person you’re lending to defaults, you’ll take over ownership of that investment property. Then you can decide whether to hold it and use it as a rental property or to flip it yourself. Because you’re already familiar with the house-flipping industry, you’ll have more security than you would with a lot of other investments, because you’ll know what kinds of exit strategies will work for the properties you lend money for.
Likewise, because you’re a real estate investor, you’ll know which houses are more likely to make good investments and which ones are more likely to sit on the market going stale. You’ll also know which questions you need to ask the person you’re lending to, and you’ll be able to spot issues like over-rehabbing or poor property choices quickly, too.
Transition into More Passive Income for Retirement
Now, if you’re just getting started in real estate investment, you’re probably thinking, “But… I’m not sure that I know any of that stuff yet.” That’s fine. You may not be ready to start lending or investing in other people’s flips just yet, and that’s perfectly okay. However, you really should keep your eyes open and pay attention to what works and what doesn’t for your leads, rehabs and flips. And start looking at your flips from a lender’s point of view, too.
The more you do this, the more successful you’ll be at flipping houses now. Then, later on, you can transition to lending as a means of freeing up more time and gaining more passive income. Essentially, flipping houses could be your means to build a big nest egg for your retirement, and private lending could be the income to keep your retirement fund nice and fat as you get older, so that you can not only enjoy your later years yourself but also leave something behind for your kids, too.
No matter where you are in your real estate investment career right now, you should consider how you’re going to use house flipping to accumulate wealth and how you can use other income opportunities to further bolster your net worth and diversify your portfolio. Private lending is a great option for experienced flippers.