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The world of investments is vast, with a wide array of options, often making one feel overwhelmed. Beyond the traditional stocks and bonds, one exciting realm is gaining ground – investing and private lending, as Jasmine Bhathena and Harish Changlani will help us navigate.
What exactly is this sphere about? It’s pretty simple. At its core, private lending refers to the process where individual investors lend their capital to borrowers in need, typically of a business or real estate nature. The catch is that it’s not done through traditional financial institutes like banks or credit unions. Instead, private lending exists outside of these established economic systems.
This might seem daunting initially, but experts like Jasmine Bhathena and Harish Changlani, who have significant experience in this space, argue the opposite. They believe private lending allows investors to create passive income streams and diversify their investment portfolios, which can help protect against economic ups and downs.
One form of private lending mainly discussed by them is real estate investing. Here, you might invest in property directly or lend your funds to other real estate investors. In case you are wondering about the safety of your hard-earned money, it is significant to note that loans are typically secured on the property, often as a second mortgage. This ensures that even if the borrower can’t repay, you, as the lender, have some safety cushion.
Investing and private lending is a promising avenue for those venturous enough. Let’s delve deeper into the mechanics of becoming a private lender and understand the critical factors to consider before making your first investment.
But first, if you want financing for your next investment and want to know what type of collateral may be involved, click the link below for a free strategy call with our mortgage team at LendCity to discuss your specific situation.
Getting Started as a Private Lender
Entering the private lending arena can be an overwhelming venture for newcomers. A way to simplify the process involves clearly understanding what it takes to get started as a private lender. Listen to experienced investors such as Jasmine Bhathena and Harish Changlani, who offer their seasoned advice.
Understand What Private Lending Is
First and foremost, it’s essential to acknowledge that private lending mainly involves providing loans that are secured on property. These loans traditionally act as a second mortgage and are a form of real estate investing.
Work with a Trustworthy Company
As part of the transition towards becoming a private lender, aligning with a trustworthy company specializing in personal lending is crucial. Brock’s company, for example, attracts borrowers and other private lenders, effectively acting as the middleman.
Observe the Matching Process
Brock’s company plays a significant role in linking people. They organize projects and pair borrowers with lenders, simplifying the process for their clients. Observing this matching process can impart invaluable insights and make it easier for you to carry out similar functions in the future.
Become a Licensed Mortgage Agent
One valuable step towards becoming a private lender involves becoming a licensed mortgage agent. This introduces you to the fundamental lending operations, aiding you to make informed investment decisions.
Consider Collaborating with Hard Money Lenders
Collaborating with hard money lenders is another way to kick-start your journey. These individuals or companies lend money to real estate investors for short-term, high-interest-rate loans. Working with them allows you to learn the ropes while actively participating in the industry.
As in any business venture, getting started as a private lender has challenges. Yet, with a keen understanding of the industry and the proper guidance from experienced personnel like Jasmine Bhathena and Harish Changlani, these hurdles become manageable stepping stones toward success.
Essential Factors to Consider Before Investing
Knowledge is Key
Before making any investment, Jasmine Bhathena and Harish Changlani emphasize the importance of research. Understanding the nuances of the market, staying updated with the latest trends, and possessing a basic understanding of investment principles is essential. The adage “Knowledge is Power” is particularly pertinent in investing, where informed choices lead to higher returns and mitigated risks.
Evaluate your Financial Stability
Financial stability is a prime concern before any venture, and investing isn’t an exception. According to Changlani, having a clear picture of your financial standing, being comfortable with potential losses and risks, and securing a backup plan is vital. For instance, possessing enough savings to cover six months of expenses gives you a safety net if your investments don’t pay off immediately.
Establish Clear Investment Goals
Having clear goals in mind can guide your investment strategy. Bhathena explains, “Whether it’s building a retirement portfolio, accumulating wealth, or creating an income stream, discerning your purpose will define your approach and the types of investments you consider.”
Understand the Investment Process
Before diving into investments, Changlani suggests understanding the process itself. This includes recognizing various investment options, procedures, time requirements, and general dos and don’ts.
Identify and Mitigate Risk
Risks are an integral part of investing, but, as Bhathena points out, they can be managed. Understanding and predicting potential risks enhances your resilience and boosts your capacity to weather periods of financial uncertainty.
Consult with a Professional
Lastly, don’t hesitate to consult a professional. A financial advisor or investment expert can provide nuanced insights and draw upon their experience to guide your decision-making process in a balanced way.
Types of Investments Jasmine Bhathena and Harish Changlani Recommend
Jasmine Bhathena and Harish Changlani, as experienced investors, recommend several types of investments for those looking to diversify their portfolios and secure their financial futures.
Real Estate Investing
Real Estate Investing is a favourite of Jasmine and Harish. They encourage new and seasoned investors to consider this tangible, highly versatile asset class. Whether buying a single-family home to rent out or investing in a multi-unit condominium complex, the income potential from real estate can be impressive.
Harish and Jasmine also highly advocate for Multifamily Investing. This type of investment involves purchasing properties with multiple units and renting them out. It’s an excellent way to generate a steady income stream, not to mention the tax advantages and the potential for property appreciation over time.
The duo stresses the profitability of private lending. In this model, you act as the lending source, providing capital for investments or projects while earning interest. According to Jasmine and Harish, you must associate with a trustworthy company that matches private lenders and borrowers for this type of investment.
An area that Jasmine and Harish especially emphasize is nurturing Retirement Portfolios. They encourage diversifying investments in your retirement portfolios, ranging from stocks and bonds to mutual funds, real estate, and private lending. The goal is to create a portfolio that generates income even when you’re no longer working.
Broadly, Jasmine Bhathena and Harish Changlani champion the practice of having a well-diversified investment portfolio. They remind investors that understanding each asset class, including its potential risks and rewards, is essential before diving in.
Strategies for Mitigating Investment Risks
The possibility of incurring losses, known as risks, is always present when investing. However, Jasmine Bhathena and Harish Changlani highlighted some strategies that can help mitigate these risks:
Diversification is one of the most effective methods for mitigating investment risks. This involves spreading your investments across various asset classes, geographies, and industries. This way, a downturn in one area won’t have a catastrophic effect on your overall portfolio.
Understanding the Market
Another key to minimizing risk is thoroughly understanding the market you’re investing in. For example, suppose you’re considering investing in real estate and understanding the local market conditions. In that case, the property value trends and the overall economic climate can significantly help to prevent poor investment decisions.
Regular Monitoring and Rebalancing
Investments require constant monitoring and rebalancing to ensure their alignment with your financial goals. It involves selling high-performing assets and purchasing underperforming ones to maintain the desired level of risk.
A crucial aspect of the investment process is risk analysis. Every investment opportunity should be thoroughly analyzed and evaluated for potential risks. Understand the worst-case scenario and verify your ability to handle such situations. Nonetheless, preparing for potential losses is essential even after implementing these strategies. Investments come with a risk of loss as market scenarios can’t be fully predicted or controlled.
Lastly, professional assistance can significantly reduce risks, especially for beginner investors. Financial advisors like Jasmine Bhathena and Harish Changlani can provide valuable insights and advice based on years of experience and expertise in the field.
Common Mistakes to Avoid in Investing and Private Lending
Ignoring Due Diligence
One of the most common missteps in investing and private lending is overlooking the importance of due diligence. Thorough research into the financial stability and credibility of the investment, the borrower, or the real estate property is crucial.
Putting all your eggs in one basket is another common mistake in investing. Diversification of your investment portfolio can help spread risk and potentially enhance returns. Remember, a well-diversified portfolio is usually more resistant to market fluctuations.
Overleverage or Overcapitalization
In private lending, a common fault is an overcapitalization or overleverage. This happens when too much money is lent concerning the value of the security, creating an imbalance and potential for financial loss. Instead, keep your loan-to-value ratios conservative.
Lack of Professional Advice
Investors or private lenders often operate alone without seeking expert advice, resulting in costly errors. Enlisting the support of professionals such as financial consultants, attorneys, or mortgage agents can lead to better-informed decisions.
Impatience and High Expectations
Investing requires patience and realistic expectations. Nevertheless, many investors or lenders expect quick returns and instant success. The truth is that investments often need time to mature and give results. Maintain reasonable expectations to avoid disillusionment or risky decisions.
Ignoring Contingency Planning
No investment is free from risk, including private lending. Unfortunately, some overlook the importance of a contingency plan. Implementing a strategy to mitigate potential losses is crucial to preserving and growing your investment.
Lack of Knowledge and Understanding
Enter any investment or lending agreement without understanding what it entails, which can result in significant losses. Learning about the investment process, the private lending market and the involved risks is essential before getting started.
Alternative Investment Options to Consider
Exploring alternative investment options is fundamental for building a diverse and secure financial future. Jasmine Bhathena and Harish Changlani from the world of private lending and investing share some viable alternatives.
In recent years, peer-to-peer lending has emerged as a unique investment opportunity. This approach allows individuals to lend directly to borrowers without needing a traditional banking institution. The interest rates, while varying wildly, can offer attractive returns.
Real Estate Investment Trusts (REITs)
An alternative for those interested in real estate investment but wary of the complexities is investing in Real Estate Investment Trusts (REITs). REITs own and usually operate income-generating real estate assets and provide investors with a way to get involved with real estate without directly owning property.
Investing in Start-ups and Small Businesses
Investing in start-ups or small businesses can provide fruitful returns if the business succeeds. However, it’s important to note the higher risk associated with it.
Exchange-traded funds (ETFs)
ETFs are a basket of different types of investments in a single portfolio. They monitor an index, sector, commodity, or other assets and can be purchased or sold on a stock exchange the same way a regular stock can. ETFs are attractive due to their low cost and diversification opportunities.
Gold and Precious Metals
Investing in gold and other precious metals can be an alternative option for those looking for a hedge against inflation.
Remember, every alternative investment option carries a set of risks. Hence, before you decide, study each one thoroughly, understand your risk tolerance level, and consult a professional to ensure you’re making a well-informed decision.
Building Long-Term Financial Security through Private Lending
Building long-term financial security can seem elusive, mainly if it predominantly relies on traditional economic systems and establishments. But have you ever considered private lending as an avenue to accumulate wealth? Both Jasmine Bhathena and Harish Changlani assert the power of this unique financial endeavour toward increasing wealth and security over time.
The Concept of Private Lending
Private lending is a practice where individuals provide loans to borrowers. Unlike conventional financial institutions acting as intermediaries, private lenders deal directly with the borrower—this frequently means more personalized terms and often higher returns, hence the inherent growth and security potential.
The Role of Security in Private Lending
Most loans in private lending are secured on the property, usually as a second mortgage. As a result, lenders rest assured that their initial investment is protected, maximizing their chance of being repaid even if borrowers default. This setup imparts a layer of security, making private lending a robust pillar of wealth-building strategy.
Borrowers and Lenders Pairing
Companies like Brock’s play a critical role in private lending. They attract borrowers needing financing and scout for lenders intrigued by the prospect of high investment returns. This process ensures lenders can find viable projects to invest in, facilitating the ongoing income stream critical to long-term financial security.
Investing in private lending often comes with the benefit of comprehensive project administration. Companies involved in the matching process also administer the projects funded, supervising from start to finish. This professional oversight adds assurance, relieving the stress of risk management while maximizing return on investment.
The Added Bonus of Diversification
Although not strictly tied to private lending, the ability to diversify your investment portfolio is a significant factor contributing to long-term financial security. Commodities, including real estate investing, syndicated mortgages, and retirement portfolios, can accompany private lending. The varied investment channels spread the risk and create multiple income streams, further securing financial stability over the long haul.
In conclusion, private lending has significant potential to help build long-term financial security. Its unique proposition of individualized loan agreements, secured investments, project administration, and the possibility of diversifying investments contribute significantly to wealth accumulation and financial independence.
If you are ready to start investing today and want more information about how your mortgage may be secured – or are looking to apply for a mortgage today – click the link below for a free strategy call with our mortgage team at LendCity today.