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Investment Series: When is the Right Time For Private Lending


 Last month we discussed the benefits, or the why, of hard money lending. This month we are going to focus on when real estate investing through private lending makes sense for you. Though any qualified individual can be a private lender, like everything else in life, timing is key. Your investment can be maximized if you are positioned properly. The factors for right timing range, but are comprehensive including economic forecasts, interest rates, real estate markets, your personal finances and your goals. 

Texas’ Real Estate Market & Economy — Texas’ real estate market has been a national leader for several years. Despite financial setbacks to the oil industry in 2016, the metroplexes (Dallas/Forth Worth, Houston, Austin, San Antonio) are breaking records in construction, real estate, and home price growth. According to Forbes Magazine, “year-over-year job growth is strong (San Antonio: 3.7%; Dallas: 3.5%; Austin: 3.3%) and people continue to move to the Lone Star State (three-year growth rates for San Antonio: 6.1%; Dallas: 6.2%; Austin: 9%), meaning it is an area flush with a pool of renters. Housing prices are rising but compared to the rest of the nation, still relatively cheap. And there continues to be a shortage of housing supply, meaning prices are likely to keep on rising (three-year home price growth projections for San Antonio: 26%; Dallas: 33%; Austin: 27%).” These cities, and Houston and Fort Worth, will continue to be good investment areas in 2017. 

Interest Rates — Interest rates are still relatively low, though the Fed is expected to raise rates by a quarter point at its Dec. 13-14 meeting. There is speculation, however, that the Fed will begin implementing the “Yellen Collar” which combines the Greenspan Put (printing massive quantities of money to prevent or suspend market crashes) with significant interest rates increases correlated with increases in the market. Federal Reserve Chair Janet Yellen has indicated she expects to raise rates a dozen times beginning in 2017. The end game is to increase interest rates to traditional levels prior to the next recession in order to cut them (they are historically slashed between 3 to 10 percent during a recession). According to KUT, “the Fed needs 11 more quarter-point interest raises to reach 3 percent on the federal funds’ rate, the low end of the historical range. A dozen interest rate increases would get the Fed to 3.25 percent. Twenty rate increases would give the Fed a cushion of just over 5 percent.” Likely, interest rates will remain relatively low – a general positive for real estate investing – throughout 2017. 

Personal Finances  — A closely scrutinized audit of your own financial portfolio should be conducted to determine both if you are qualified to be a private lender and if now is the time. if you have not yet diversified your portfolio, private lending is a great alternate investment option to build a risk-diversified portfolio. However, if your existing investment portfolio is already real-estate heavy, private lending could prove redundant. The ultimate goal is to diversify your risk between high and low, which earn equivalent returns. Real estate typically is less risky than the stock market and sees moderate returns (between 7 and 9 percent) in a short period (typically 12 – 18 months). Private lenders will be qualified against stringent criteria (governed by the 5 C’s of underwriting), so your finances should be in good standing before private lending is a viable. If you are debt-free, have an ample emergency fund, and good cash flow, private lending is a good alternative investment options for you. 

Personal Goals — If you are expecting a get-rich quick opportunity, private lending is not your best bet. Healthy, short-term, consistent returns earns you extra cash flow to re-invest or offset expenses throughout retirement. Typically, these returns can provide you with relatively quick returns, helping you pave the way towards financial freedom, but are not going to earn huge returns. Real estate investing through fix and flip operations can result in higher yields than private lending or even the long-term acquisition of real estate. Additionally, if you want a hands-off approach and do not want to hassle with tenants and/or property management as a landlord – or assume the stress and management of a renovation project – but you want to diversify your portfolio with real estate investment – private lending is your best option. Working with private lender networks, like Noble Capital’s PLN, takes away the guesswork and transfers the burden of diligence and market analysis to experts . Working with a network provides you with a passive investment opportunity and also mitigates limited experience or expertise which can negatively impact success in real estate investing.

Noble Capital

Noble Capital is Texas’ premiere full-service private lender network leveraging experience and expert asset management to make short-term investments with a return a reality. Backed 100% percent by Texas’ real-estate market, Noble Capital bridges the stream of private lenders and borrowers seeking alternative investment opportunities through their Private Lender Network (PLN) in Austin, Houston, Dallas/Fort Worth and San Antonio. Noble Capital specializes exclusively in real estate-backed hard money lending and has built a full-service lending and loan servicing platform providing pre-screening, underwriting and asset management.


Address: 8200 North Mopac Expressway, Suite 320, Austin, Texas 78759
Phone: 512.249.2800
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