How To Achieve Yield in a Low Interest Economy

by Benjamin Roussey
How To Achieve Yield in a Low Interest Economy

Low interest rates can increase spending and accelerate economic growth, but a low interest economy offers little respite for those looking for high returns on investments. In today’s low-interest economy, there are typically two types of investments: high risk investments, or low risk investments.

High risk investments can equate to high rewards, while low risk investments typically bring about low yields. High risk also denotes that an investor has a likely chance of losing money overall or at the very least, underperformance. Yet, if an investor does not risk enough, they may not yield enough of a return to make the investment worth it.

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The question then becomes: how can an investor have the best of both worlds, and achieve an acceptable yield for a low risk? An investor looking for high-interest rate investments in a low interest economy needs to think outside the box. They also need to diversify their portfolios in order to beat the effects of inflation. Private commercial real estate lending with organizations like iBorrow is an attractive solution to this issue.

The typical practice for investors is to frequently overlook risks associated with an investment. These investors are often too focused on their returns, and not nearly concerned enough with how risky the investment may be.

Get Creative & Invest In Private Real Estate Loans

high-interest-rate-investment

Private commercial real estate loans minimize risk by putting collateral under the loan while still offering salient returns on your investment. High risk investments require an investor to leverage his or her investment, which then creates risk, but private non-recourse lending allows investors to get creative.

 

The typical practice for investors is to frequently overlook risks associated with an investment. These investors are often too focused on their returns, and not nearly concerned enough with how risky the investment may be.

 

The difference between a private non-recourse lender and a traditional lender (like a bank), is that a private lender underwrites the collateral, or property, instead of the borrower. Traditional lenders need to adhere to strict regulations that meticulously consider other factors such as the borrower’s credit history, income, and cash in the bank. If a business owner decides to go the private loan route, they can be assured that there is inherent flexibility that comes with obtaining a loan this way. This flexibility also allows private lenders to set higher interest rates, resulting in higher yield for investors.

 

As previously mentioned, by placing collateral under a loan, investors can rest easy knowing that they may achieve high results for low risk. Collateral acts as a buffer that allows for low risk to both the borrower and the lender. It is essentially security that if a borrower cannot repay a loan, the lender can then collect the collateral instead. This security is especially necessary in today’s economy, and in particular, with commercial real estate.

 

The bottom line is that earning enough interest off traditional investments to meet your goals in a low interest economic environment is extremely difficult. Interest rates on stocks and bonds are too low to generate significant returns. As a result, many turn to high-risk investments as their only option for achieving yield. This can lead to unnecessary and preventable losses. A better option for investors is to get creative and diversify their portfolios with low-risk high-reward private CRE loans.

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