Most people think in order to succeed in private lending you have to crawl over a bed of hot coals to do it.
Because there are 3 powerful rules to shield you against any fiery obstacle on your private lending path to financial freedom.
And when you follow them?
You’ll be able to earn 6 – 7 figures each and every year like clockwork. You will have the freedom to enjoy spending your time with friends and loved ones; never, ever again answer to a boss; no longer worry about being late to work because you hit the snooze button one too many times.
Following these 3 simple rules can make all that happen. But you have to be willing to commit to your success to master them. How? First, be brutally honest with yourself. Do you really know how these rules work? Second, are you willing to learn how to make them a habit with every borrower and lender you approach?
Success Rule #1: Ditch your consumer mentality
You want to be the banker.
Because the mind of a banker is mysterious and even foreign to most people, it can take years to develop. To get there faster, you have to stop thinking like a consumer or an investor. Start by understanding opportunity cost. That means every single dollar in your hot little hands should be working for you by earning interest. When you buy something, you give up that earning potential to acquire something else. To a banker that practice has far less value. In short – bankers look at the interest they can be making. Little (if anything) else plays out in their financial minds.
Take the fellow we’ll call “John.” John didn’t know how to be a banker. He went into his deals thinking like an investor.
He was looking for ROIs (return on investments) when he should have focused on value and interest. Because he consistently focused on the wrong thing, his deals fell apart. Frustrated, John gave up and went back to working for someone else.
Success Rule #2: Eliminate your risk
Hand over your risk–to the borrower.
In order to stay off the coals you have to sidestep risk. Move your risk to the shoulders of your borrower. Risk is like a see-saw. When your risk goes up, the borrower’s goes down. And vice-versa.
And you know how they shift the risk in their favor?
By lowering their LTV (Loan to Value). If you provide a 65% LTV loan and the borrower defaults, you could potentially gain 100% of the property for just 65% of the value. The lower your LTV, the better off you are if trouble brews.
Ignore this rule and you become like a woman we’ll call “Jane”. She didn’t think about this second rule of private lending. Poor Jane’s LTV see-saw was tipped in the borrowers favor. Jane kept all the risk for herself. When that risk blew up, it smashed her passive income dreams to smithereens.
Success Rule #3: Master Re-hypothecation
Ever heard of hypothecation?
This concept needs to be written on a sticky note and plastered on your brain. Because it’s the way all bankers secure their fortunes. Simply put, hypothecation is when a borrower puts up collateral for the loan you’re offering. Once this is secured, you can then use that collateral to secure another loan for another deal. That’s re-hypothecation. This process is the difference between having a deal or not having one. You cannot proceed with a borrower without it, or rule #2 above – handing over the risk – is moot.
It’s all as simple as covering your butt – a concept bankers live or die by because an uncovered butt is asking to be kicked.
What if I’m struggling to get these concepts?
Help is here! Really. Look over to the right of this article. Go ahead, I’ll wait. All those resources, plus the ones at the bottom of this newsletter are there to help you my friend.
Each of them will make your journey to private lending success as painless as possible. So while up till now it may not have been your fault for not knowing these 3 rules, now it’s your responsibility to make a choice.
Do you invest the time and effort into mastering these 3 rules? Or, do you take a few more wild swings at success that end up with you slaving away for someone else in a cubicle?
Start with these 3 rules, then the others will be easy
Yes, there are other rules for success in this business. But finding deals, funding deals and negotiating win-win terms for you and your borrowers won’t matter if you can’t make these 3 rules a habit.
Ditch your consumer mentality and learn to act and think like a banker. Stop trying to be a nice guy by taking all the risk. Move the risk to borrower where it belongs. Start finding ways to create real wealth through re-hypothecation.
Then, you’ll finally have the foundation to create as much passive income as you wish. So you can live a lavish retirement, travel anywhere in the world you wish and truly be financially independent.