What Does It Mean to Be a Private Money Lender?
Although there are lots of people out there who have the potential to become successful real estate investors, very few attempt to. Most shrug off this avenue to riches because they don't have the money to invest in a property and they feel that it would be too difficult to secure financing in the form of a bank loan or loan from some other hard money lender. Little do they know that there is an easier and better way for a real estate investor to finance his properties - through private money lenders.
Private Money Lenders Explained
A private money loan is one that is financed through an individual who has spare money to lend and who wants to make a small profit off of that money. This is the most flexible financing option for real estate investors because you get to borrow money from a regular individual, just like you and me, instead of a bank or other lending institution - which can be very impersonal and formal. Banks and lending institutions have rules and regulations that they must follow when deciding who to lend money to, but private money lenders do not.
Why Private Money Loans Are a Better Way to Finance Your Properties
Because private money lenders don't have to follow the same strict rules and regulations imposed by the government and board of directors in the same way banks and other traditional lending institutions do, they can choose whom they invest with. That means they may be very willing to lend you money if they see you as someone they want to invest with, regardless of a substandard credit rating or other financial missteps.
Benefits of Using a Private Money Lender
As an investor, you can appeal and make your case to a private money lender, explain to them why they should invest in your property, and allow them to come to their own conclusion. But the benefits of a private money loan do not end there. If the lender is interested in your offer, the two of you can then work out a financing and repayment arrangement that benefits both parties. You and the lender can both state your expectations and agree on an interest rate and payment schedule that makes both of you happy.
A private money loan is a short-term loan and therefore, the private money lender may be willing to wait until after you have refurbished and sold the house to receive any payments. This lets you focus on fixing and selling the property instead of having to worry about paying for a property that hasn't actually made you any money yet.
The Downside of Traditional Hard Money Loans
While private money loans benefit both borrower and lender, bank loans usually give the benefit to the bank. They get to set the standards on their side, and if you are lucky enough to get a loan through them, they also get to set the interest rate and determine what other fees might be. In general, you're not going to be allowed to make payment arrangements or other special arrangements, but will have to stick to the schedule the bank sets. This means that even if your credit history is perfect, and even if you can receive financing from a traditional lender, using a private money lender may still offer you more advantages.
Summarizing the Benefits of Working with a Private Money Lender
Private Lender can lend freely and does not have to abide by tough rules and restrictions. Allows real estate investors with problematic personal credit histories to secure financing for their properties.
Opens the lines of communication between lender and borrower. Borrower can negotiate an interest rate or flat fee that is almost guaranteed to save money over a traditional loan.
As the borrower, you can negotiate with the private money lender to customize payment arrangements that will be beneficial to you both. If the lender is amenable, you may be able to suspend payments altogether until you've "flipped" your property.
No financial application is required. Borrower can appeal directly to the private money lender and convince him to take a chance on the property in question.
Private Lender will see borrower as a real person with a real goal, instead of just a paper application that must pass ridged guidelines.
All of these benefits make private money loans the most flexible funding option for real estate investors. A private money loan allows you a variety of options and opens the door for many real estate investors who would otherwise be turned down by a traditional lender.
Private Money Lenders Explained
A private money loan is one that is financed through an individual who has spare money to lend and who wants to make a small profit off of that money. This is the most flexible financing option for real estate investors because you get to borrow money from a regular individual, just like you and me, instead of a bank or other lending institution - which can be very impersonal and formal. Banks and lending institutions have rules and regulations that they must follow when deciding who to lend money to, but private money lenders do not.
Why Private Money Loans Are a Better Way to Finance Your Properties
Because private money lenders don't have to follow the same strict rules and regulations imposed by the government and board of directors in the same way banks and other traditional lending institutions do, they can choose whom they invest with. That means they may be very willing to lend you money if they see you as someone they want to invest with, regardless of a substandard credit rating or other financial missteps.
Benefits of Using a Private Money Lender
As an investor, you can appeal and make your case to a private money lender, explain to them why they should invest in your property, and allow them to come to their own conclusion. But the benefits of a private money loan do not end there. If the lender is interested in your offer, the two of you can then work out a financing and repayment arrangement that benefits both parties. You and the lender can both state your expectations and agree on an interest rate and payment schedule that makes both of you happy.
A private money loan is a short-term loan and therefore, the private money lender may be willing to wait until after you have refurbished and sold the house to receive any payments. This lets you focus on fixing and selling the property instead of having to worry about paying for a property that hasn't actually made you any money yet.
The Downside of Traditional Hard Money Loans
While private money loans benefit both borrower and lender, bank loans usually give the benefit to the bank. They get to set the standards on their side, and if you are lucky enough to get a loan through them, they also get to set the interest rate and determine what other fees might be. In general, you're not going to be allowed to make payment arrangements or other special arrangements, but will have to stick to the schedule the bank sets. This means that even if your credit history is perfect, and even if you can receive financing from a traditional lender, using a private money lender may still offer you more advantages.
Summarizing the Benefits of Working with a Private Money Lender
Private Lender can lend freely and does not have to abide by tough rules and restrictions. Allows real estate investors with problematic personal credit histories to secure financing for their properties.
Opens the lines of communication between lender and borrower. Borrower can negotiate an interest rate or flat fee that is almost guaranteed to save money over a traditional loan.
As the borrower, you can negotiate with the private money lender to customize payment arrangements that will be beneficial to you both. If the lender is amenable, you may be able to suspend payments altogether until you've "flipped" your property.
No financial application is required. Borrower can appeal directly to the private money lender and convince him to take a chance on the property in question.
Private Lender will see borrower as a real person with a real goal, instead of just a paper application that must pass ridged guidelines.
All of these benefits make private money loans the most flexible funding option for real estate investors. A private money loan allows you a variety of options and opens the door for many real estate investors who would otherwise be turned down by a traditional lender.
About the Author:
You don't need an above average credit score or a large down payment to get financing for your real estate deals. Simply look for a Private Money Lender in your area.
posted by Credit Counseling at
9:02 AM
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