01/Apr/2010
How Can You Safely and Securely Earn
Two -Three Times Current Bank Rates?
By John Sanford
The good news is that high yielding investments are
now available for small investors.
You’ve worked hard for your money, and you’re a good
saver too. So, why is it so hard for you to earn a decent return?
You need something safe and secure, but you want something
that pays a whole lot better than the paltry returns banks pay these days
Banks Are Just Middlemen
Banks understand the relationship between risk and
return - the higher the risk, the greater the return.
If the risk is low, then so is the return.
So, when banks promise to pay you a fixed rate on
your money, they want to be really sure they can deliver.
But they are in business too. The banks need
to make money and the way they do it is by borrowing from small investors at
low rates.
Then they loan the money out
to someone else at a much higher rate.
The
difference is their profit. So, in reality, the banks are basically just
middlemen.
The security you’re offered depends on what type of
bank investment you make. Some may be insured by the Federal Government, while
others may be more risky.
Earn Higher Rates
If the banks are loaning your money out to
someone else, and they don’t like risk, how do they protect themselves?
The answer is by obtaining collateral for the loans
they make. They take an interest in an asset that has a value greater than the
loan they are making. In many cases, the best asset they can find is a
borrower’s home.
So, when someone comes into the bank to borrow money,
the bank says “No problem.
We will give
you a loan as long as you have something we can sell to get our money back,
just in case things don’t work out and you can’t pay us back.”
A Secured Loan
This is what’s known as a “secured loan,” and you see
it all the time. The bank takes a mortgage or puts a lien on someone’s house
and then makes a loan to them. If the loan is not paid back, the bank takes the
house and sells it to get their money back.
Sounds easy right? Well, actually it is easy. There
are lots of people out there who are buying and selling real estate.
Many of them would be more than happy to pay
you a higher return than your bank is paying.
They’ll even give you a lien (or mortgage) on their
house. By doing this, you “cut out the middleman.” You get to earn the higher
rate of return that the bank would earn instead of the lower rate of return the
bank pays to its depositors.
In this
way, you become the bank.
Invest The Way Banks Do!
Once you understand this, you quickly realize
that you can now invest the same way that the banks do. All you have to do is
find someone who fits the following criteria:
1. They want to borrow
money
2. They
are willing to pay a high interest rate
3. They
have property that is worth more than the amount they want to borrow
4. They
are willing to give you a lien on the property to secure the loan
When you find someone who fits these four criteria,
you have the chance to earn two to three times as much as you could if you put
your money in the bank.
Why doesn’t your investment
adviser tell you about this kind of opportunity?
Sadly, one of the main reasons you won’t usually hear about
these opportunities from an investment adviser is that there are generally no
commissions for them to earn from this kind of transaction.
Investment Advisers
Many mutual funds, insurance, stock and investment
companies pay investment advisers large commissions for getting their clients
to invest in their products.
However,
the average real estate investor isn’t a large Wall Street company. They’re
just hard working people like you and me.
And they want to borrow money to invest in real estate at a fair rate
without having to build in a bunch of commissions.
This is great for you as a “private lender,” someone
who invests in these types of transactions, because the investment doesn’t have
to be as risky and doesn’t have to generate a much higher return that covers
both your stated rate of return
PLUS the commissions paid to get you
into the deal in the first place.
In other words, you usually don’t hear about these
deals, because there’s nothing in it for a middleman investment adviser to make
money from telling you about them!
Private Lending
Opportunities
So, how do you find private
lending opportunities that pay above average returns?
Let’s face it there are lots of people who would like
to borrow money from you. The challenge is finding deals that make sense, deals
that are safe and secure and that give a good cushion of security to protect
your investment.
One of the best ways to find these types of deals is
to talk to real estate investors. Real estate investors are frequently looking
for private lenders who will loan them funds at a rate that is two to three
times what the bank is paying, and they will offer real estate to secure the
loan.
You can usually find real estate investors who have
private lending programs at local real estate groups, real estate investment
clubs and real estate meet-ups.
