How Increasing Your “Velocity of Capital” Will MASSIVELY Boost Your ROI in Private Money Lending

Ever heard the term “velocity of capital?” The difference it can make in your private money lending profits is HUGE.

What is “velocity of capital?”

Velocity of capital is the speed at which you can re-loan the same money in a given year. It’s a function of how quickly your private lending borrowers finish their property-flips and repay the loan you gave them.

Remember, private money loans should be a maximum of 12 months long. I shoot for even shorter…as short as possible, in fact.

Here’s why: if you’re lending short term, you can “turn” your money several times per year and really boost your annual ROI.

Say you have $100k sitting in your Self-Directed IRA or Solo 401k. You decide to use that money to do some private lending. You make four 3-month loans in 2023, one after the other, using the same $100k.

You get to charge origination fees (aka “points”) on all four loans. If, for example, you charged a 3% fee to originate each loan, you’d make 12% just in fees for the year…on the same $100k.

And that 12% in fees is IN ADDITION to the double-digit interest you’d be collecting along the way.

If instead you only made 1 loan in 2023 that took 12 months to pay off, you’d only get to charge the 3% origination fee once.

You can boost your ROI even further with other private lending hacks that most lenders are clueless about:

Due diligence/underwriting fees

Extension fees

Payoff fees

And more, all of which are completely reasonable to compensate you for your time and effort, and for the use of your money. (Most private lenders are completely oblivious about these…don’t be one of them!)

Bottom line regarding velocity of capital: the more often you can re-loan the same money in a given year, the better your annualized yield. It’s as simple as that.

That one realization has made me A LOT of money as a private lender. And it will for you too.