It’s no secret that the pandemic economy is an uncertain one. Although there are predictions that the economy will improve in 2021, a number of factors could influence the market, including:
The pandemic economy is also a tale of two financial stories. Some people have been hit hard, while others are thriving. With a vaccine being distributed, the end is theoretically in sight. However, if 2020 taught us anything, it’s that we can’t reliably predict the future. All of these considerations are leading investors to evaluate their strategies.
With so much uncertainty, many investors are choosing to diversify their portfolios with investments outside of the stock market. Although many investors can survive the swings of the market in the long term, not everybody is comfortable with the prospect of a double-dip recession and the recovery that entails. Depending on your financial situation and how much liquidity you desire, expanding your portfolio beyond the stock market could be a wise decision.
Early 2020 saw massive swings in the market. However, many of those swings were abated due to both fiscal and monetary stimulus, in addition to forbearances and eviction moratoriums. Did the can get kicked down the road? Only time will tell. Regardless, investors who prioritize capital preservation or do not like the volatility of the stock market may want to explore other options.
Many people are turning to hard money loans because they can’t get a traditional loan, which means demand for private capital is increasing. Although mortgage rates are low, traditional lenders have limitations on who they can lend to and the type of properties they can finance. Private real estate doesn’t have the same limitations.
Private lenders rely on investor capital in order to fund loans, often generating reliable returns from the interest, provided the loan is underwritten and structured well. For investors looking to diversify, investing in hard money loans offers several benefits, such as:
Many investors like these characteristics of private debt. There is also the potential for additional opportunities in the form of “distressed debt,” which is purchasing nonperforming loans at discounts or performing loans from other distressed lenders. These types of investments require a considerable amount of due diligence, so make sure you find the right partner.
Just as you would with any type of investment, take the time to research your options. Various private lenders offer a range of loan types and also use different strategies for securing investments and disbursing funds. Yields can also vary significantly, so compare the past history of the investments you are considering to evaluate performance.
Consider the following:
Ultimately, you should feel comfortable with the lender’s portfolio strategy and their approach to providing loans.
Socotra Capital has funded more than 1,500 loans totaling $800,000,000. Borrowers benefit from our flexible terms and ability to close loans quickly, while investors get reliable monthly returns. We continue to seek like minded investors to meet our growing borrower demands.
If you’re interested in learning more about investing in private real estate debt as part of your strategy for surviving the pandemic economy, get in touch with Socotra Capital. We’re happy to answer any questions you may have about how private lending works, our underwriting process, and our track record with borrowers and investors.