One of the stipulations of being a real estate investor is the fact that you need to have cash to buy investment homes. Even the best investors with excellent credit and ample bank accounts sometimes require extra funding sources to make real estate investment deals. Private Money Loans are one way to do this.
In times when REI professionals need to access additional capital for residential or commercial real estate investments, it isn’t unusual for them to work with Private Lenders. Private Lenders offer REI professionals a way to gain access to private funding without going through traditional lenders such as their local bank or credit union.
Since Private Money Lenders are loaning from their financial assets, this type of loan often comes with slightly higher interest rates. However, the upside is that these deals are usually funded pretty quickly, without a lot of ‘red tape’ and hassles that are common in traditional lending.
How Private Money Loans Work
Private Money Loans get issued by people or companies who are in the business of lending. Their business model is based on making returns on the interest of the loan. Typically, this is anywhere from 10% – 15%. These days, more individuals and companies are issuing these types of loans than ever before.
People seeking these loans will need to prove that the investment gets secured by a real estate asset and principal of the loan doesn’t exceed a 75% loan to value after the property has been acquired and repaired to get sold. Each hard money loan gets made for a particular property, and if the lender isn’t comfortable making an investment in the proposed property, they have the right to decline the request.
Applications that get approved often get funded in 7 to 10 days, sometimes even faster. Approved loans then get wired to a closing attorney who holds the funds in escrow. When the property sale closes, the borrower must send a Promissory Note to the lender, a Mortgage (Deed to Secure Debt) as well as Lender’s Title Insurance with him listed as the mortgagee on a Hazard Insurance Policy.
Private lending gives people a chance to access funds with agility and speed, giving borrowers flexibility to fund the purchase of investment property quicker than financing with a traditional mortgage.
Further, borrowers aren’t limited by subjective rules, like how many mortgages they can have at one time. Since these loans do not get reported to the credit reporting agencies, borrowers won’t take a negative hit to their credit reports! Everyone involved wins because the lender earns a higher interest on his working capital and the borrower can make a higher than normal return on the work they complete when the residence sells.
If you’re interested in learning how you can leverage Private Money to fund your real estate investment goals, Contact Us today to speak with a representative!