The Interest Strategy That Can Boost Your Net Worth At A Faster Rate

Investing is not a get-rich-quick strategy. In fact, it can take decades to see sizable returns in the stock market. Experts such as Charlie Munger even advise investors to play the long game when it comes to the stock market. But while we usually think of investing as parking money in the stock market or buying real estate, there are other types of investment strategies that can provide quicker returns and still lead to serious wealth. Private lending, for example, is a type of investing that provides interest returns and can quickly grow your wealth, according to GOBakingRates.

Private lending is the act of providing capital in the form of a loan to another person or business. Typically, these loans are used to fund real estate investments or serve as bridge loans during real estate transactions. Private lenders are not subject to the same rules as banks and other financial institutions, which enables them to charge higher interest rates, typically between 15 and 20%, according to SmartAsset. These individuals also have more freedom to set shorter repayment options. The greater flexibility offered by private lending can provide consistent returns that are not tied to the stock or real estate market's volatility.

While private lending can seem like a lucrative investment strategy, it is a complicated field where small oversights can be costly. Firstly, there is no minimum lending capital required in most states, but you should have a substantial amount of money saved and be in good financial standing. According to Money Thumb, many states require private lenders to obtain specific licenses based on the type of loans they are looking to provide. This can set you back anywhere from a couple hundred to thousands of dollars depending on the type of lending license and your state.

To begin issuing loans, SmartAsset recommends networking with real estate agents and investors, contractors, and financial professionals to build out reputable leads. You'll also want to draft standardized lending agreements. These documents will stipulate the loan details, penalties, and the governing law when you issue a loan. After issuing a loan, remember that in this scenario you act as the bank, meaning that if a borrower defaults, it is your money at risk. You should be able to handle a loan going bad without compromising your financial standing. Likewise, you should have a plan for dealing with borrowers who default, either through a collection agency or litigation. 

So, while private lending can lead to great returns, it requires legal knowledge, patience, a healthy appetite for risk, and access to a large amount of capital. If you lack the liquidity, private lending isn't the right path to building wealth (at least not yet). Instead, it's best to work on saving your first $100,000.