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Home Buying, Private Money

Maximizing Returns on A Private Money Loan

Why would you want to use a private money loan if you have the cash yourself? Whether you realize it or not, a private money loan is already helping you maximize the return on your investment. Here are a few ways a private money loan can work for you:

You gain leverage: leverage is using someone else’s money, in this case, the loan, to buy property. Taking out a loan frees up your own cash.

You can use this leverage to diversify your investments: with your own money not tied up in one property you are able to spread it out over multiple investments.
You can maximize your returns by putting less cash into each investment: when the return on your investment is less than the interest on the loan, you end up making money from the loan.

You can maximize your tax deduction: leveraging your investment with a loan means that you can get a big tax deduction at the end of the year as you can depreciate the value of the entire property, loan included and not just what you invested personally. You can also write off the loan’s interest, which, at the beginning, is pretty big, leading to another deduction.

Leveraging your property builds equity: property equity is the difference between what you owe on your mortgage and what the property is worth. Your property’s equity is based on the cash you put down on your property, but this builds as the income from the property pays down the loan principal. Then, you have a few options: sell the property and keep your initial investment plus the return, refinance, refinance and use the equity you’ve gained to finance a new investment, or refinance and just keep the cash.

You can keep your assets liquid: real estate is not the most liquid asset, and sometimes life throws you curveballs that require cash. Keeping some of your assets liquid frees you up for other investment opportunities or emergencies.

 

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