Why Private Lending? Most real estate investors are well aware banks are not lending to real estate investors or paying a decent return on savings or money market money right now. Unfortunately as the real estate investment market is heating up. Real estate prices may be at their lowest prices we will see in our lifetimes. Real Estate investors can buy and fix up properties that cash flow with low loan balances and plenty of equity in the properties.
So what can an investor do?
Private money is fast becoming the best and only solution for many real estate investors to take advantage of today’s market. Passive investors can earn a great return on investment that more then beats inflation and creates wealth. Private lending overlooks black eyes on credit reports and gives knowledgeable investors, who may have leftover debts from the mortgage meltdown, the ability to take advantage of these record low real estate prices.
So, what is private money?
Private Money is a loan from a private individual using property as collateral. Terms for these types of loans will vary from lender to lender and will depend upon the experience level of an investor, as well as the length of an investor’s relationship with a particular lender. Therefore, there are really no hard and fast rules to private money.
Generally, a private money lender will provide a loan for 50-65% of the acquisition price of a property at an interest rate of 9.9% or more for a period of 12 months to five years.
Private lenders must provide the following:
- The investor’s background and experience
- The investor and lender’s previous relationship
- Property details
Some private lenders will only charge interest only while some lenders will amortize their loans. Some private investors will lend repair money; others won’t. Some will place the repair money in escrow to be drawn out as the work is completed; others will let you leave the settlement table with it. Some will lend closing costs; some won’t. Ultimately, when finding private money lenders, you will need to determine their terms and how they might fit into your plans as an investor.
Remember, there are no clearly defined standards or regulations with Hard or Private money investors and therefore, being educated is your best tool in this field. Know who you’re talking to, what their parameters are, and what you’re willing to do as a lender, borrower, or broker. Knowledge is your best safety net!