Private Equity Partner and Private Lender in Today's Economy

The challenges of today's investing environment make being a private equity partner and private lender a great choice. When stacked up against alternative investments the risk/reward ratio makes both of these very favorable options. Which one you choose would depend on your investment objectives.

The private equity partner is an individual who puts money into a real estate transaction as an equity partner. This private investor, therefore, benefits directly from the performance of the property. They would benefit from both the net income and appreciation derived from the property. Residential and commercial real estate investments lend themselves very well to this type of investment. It is typical to have only one cash investor in a residential investment. With a commercial property, it may also be only one investor but in the larger transactions very often a group of investors would combine their money in a syndicate to fund the equity stake in the transaction.

The private lender is an individual who lends their money to an investor for a real estate transaction. In return, they receive an agreed to rate of return for a specified period of time. They are creating a mortgage and mortgage note. Unlike the private equity partner, they do not share in the income and appreciation on the property but are instead a creditor. Their interest is secured by the real estate. In today's environment the interest rate paid is in the vicinity of 7% to 10% per year.

Compare these to other forms of investment:

• Money Market: Currently most money market funds are paying under 1.50%
• CDs (Certificates of Deposit):
• 1 Year: Around 2.00%
• 5 Year: Around 3.50%
• Corporate and Municipal Bonds: The yields on corporate bonds will vary with the credit worthiness of the corporation or municipality behind the bond as well
  as the maturity date of the bond.
• Stocks: The stock market has been very volatile over the last several years. The Dow Jones Industrial Average is currently about 3,000 point above its lows from earlier in the year.
• Gold: Currently gold is at its all-time high over $1,000 an ounce.

My point of view is that when you factor in price, yield and volatility, being a passive investor in real estate as either a private equity partner or private lender rates high up in terms of risk/reward.

Click the link for our free report: "Top 10 Questions To Ask Before Becoming A Private Lender With Any Company".