Do You Need to be a Market Timer to Be Successful in Private Money Lending?

When I tell people that private money lending is my “desert island” investment strategy — the ONE strategy I’d pick to generate double-digit returns at any point in the market cycle — I often hear a number of objections.

The first objection I usually get (especially when people hear I’m a research nut/market timer) is:

"I feel like I need to be a market timer like you to be a private lender, Dave." 

This couldn't be further from the truth.

Yes, the real estate market is ever-changing. Yes, prices are constantly fluctuating one way or the other to some degree.

But you do NOT need to be an expert-level market timer to make private money lending work like gangbusters.

Why?

Because while the market IS always changing, it changes slowly. Even during the housing collapse of 2007-2009, home prices in the worst-hit markets only really dropped around 2% per month.

And more recently, during the housing-market tailwind created by COVID (and the Fed’s Zero-Interest-Rate/Quantitative Easing policies), prices went up about 2% per month in markets like California.

So it goes both ways. But again, even if you’re on the wrong side of a market correction, a property you have a loan on might lose at most 1-2% of its value per month.

But doesn’t that mean you’re losing money? Doesn’t it mean you’re losing 1-2% per month on your investment?

Not at all. You’re just the lender in this context. Your collateral is losing a little value, but you’re a long way from losing actual money.

I’ll explain more in my next article.