The EASIEST Way to Make Cash Flow (That Most Investors Aren’t Doing)

Devon Canard, a former NFL veteran, transitioned from owning 50 single-family rental properties to a focus on private lending. He began investing in real estate in 2014, building a significant portfolio in the Midwest. Initially, he achieved strong cash-on-cash returns by purchasing turnkey properties in blue-collar neighborhoods for under $100,000, often exceeding the 1% rule with rents of $1,200 or more. He also diversified by investing passively in 50 different syndications and funds. However, as home prices and interest rates rose, Canard observed a decline in cash flow from his rental properties. He found that while syndications offered an 8% preferred return, they lacked flexibility, and payments could be suspended. This led him to explore private lending as a more attractive option for generating consistent cash flow. Private lending, in essence, involves providing capital to other real estate investors and developers for their projects. The borrower pays a set interest rate, and the loan is secured by the property itself, acting as collateral. This structure offers a compelling alternative to traditional real estate investing, especially when cash flow is a primary objective. Canard's journey into private lending began organically when a few borrowers approached him for capital. He found the model attractive: borrowers needed funds for acquisition and renovation, were willing to pay a fixed interest rate, and would repay the principal upon selling the property, allowing him to recycle his capital. He learned the ropes through experience, eventually building a business around this strategy. The core appeal of private lending lies in its collateralization by hard assets, significantly mitigating risk. Canard emphasizes lending at a maximum of 70-80% of the After Repair Value (ARV) or As-Is value, ensuring a substantial equity cushion. This means that even if the borrower defaults, the lender has considerable room to sell the property and recoup their capital, often with a profit. For example, if a property is worth $1 million and the lender provides a $700,000 loan, there's a $300,000 equity cushion. Canard's personal returns from private lending are impressive. He charges 12% interest plus a 1% origination fee, along with processing and document preparation fees. On a $500,000 loan, this can generate $6,500 upon closing, plus $5,000 per month in interest. A key advantage is the absence of prepayment penalties, allowing him to do the same loan multiple times within a year. If a fix-and-flipper pays off a loan in six months, Canard can redeploy that capital and earn the origination fee again, effectively annualizing returns of 15-16% on his capital. While private lending offers attractive cash flow, it's important to note that the income is typically treated as ordinary income and is subject to taxes, unlike rental income which benefits from depreciation. However, this can be strategically managed. By combining private lending with real estate investments that offer tax benefits and appreciation, investors can create a well-rounded portfolio. For instance, the earned income from lending can potentially be offset by depreciation and other tax strategies applied to rental properties. Several avenues exist for investors to enter the private lending space. The most profitable, though more active, is direct lending, where individuals manage their own loans. This can involve using personal capital, lines of credit, or raising funds from other investors. Canard operates his business this way, managing $12 million in assets under management while working a limited number of hours per week due to automation and streamlined processes. For those seeking a more passive approach, investing in private debt funds is an option. These funds pool investor capital and manage loans, typically offering returns of 8-10%. Another in-between approach involves investing in individual notes that have already been originated. This allows investors to purchase a portion of an existing loan, gaining direct exposure to a specific deal without the full origination responsibilities. Self-directed IRAs and 401(k)s offer a tax-advantaged way to engage in private lending. This allows the returns to compound tax-free within the retirement account. Investors can use these accounts to invest in debt funds or even directly in loans. When evaluating a potential loan, Canard looks at several key metrics: the purchase price, the As-Is value of the property, and the projected After Repair Value (ARV). He prefers to lend no more than 80% of the As-Is value and often aims for 70% of the ARV. The borrower must also have at least 10% equity in the deal. For renovation loans, he holds back the repair budget, releasing funds in draws as the work is completed and verified through photos and invoices. This controlled disbursement ensures the borrower is progressing and the funds are used appropriately. Technology plays a crucial role in streamlining the private lending process. Software can automate loan applications, property valuations, notifications, and payment processing. Companies like LightningDoc.ai provide comprehensive loan packages, making the legal documentation accessible and affordable even for smaller loan amounts. This technological advancement has democratized private lending, making it more achievable for individuals with less capital. Canard estimates that the actual hands-on work for each loan, once the borrower relationship and deal flow are established, is minimal, often under three hours. The majority of the operational aspects can be automated. This efficiency allows for high returns with a relatively low time commitment, making it an attractive strategy for those seeking passive income or a lifestyle business. While direct lending can be highly profitable, Canard suggests a minimum of $50,000 to make it meaningful for both the lender and the borrower. However, he acknowledges that smaller amounts, even $5,000 to $10,000, can be invested in debt funds to gain exposure and earn a taste of the returns. Canard's book, "Real Estate Side Hustle," further details these strategies, covering single-family investing, syndications, and private lending, aiming to help individuals build wealth while maintaining a primary career. He emphasizes that private lending is an underrated vehicle that more investors should consider as part of a diversified real estate portfolio.