With the economic meltdown and tighter lending regulations, real estate investors are finding themselves with less and less money to do business. Both traditional mortgages and hard money are no longer so easy to get, making private money lending the easiest option to finance your real estate investing deals.
Private money is the type of mortgage obtained from private individuals who have money to invest and are looking for higher returns than they can get in traditional investments such as banks or CDs. The investment is usually secured by the real estate property being purchased and not you as the borrower.
So why is private money the way to go in real estate investing?
1) No credit restrictions
The credit of the borrower does not arise in private money lending – the investment is secured by real estate. The terms and conditions of the loan depend on you and the lender
2) Easier and faster to obtain
It is easier to get a private money loan than it is to get a traditional mortgage or hard money. There are no tough under-writing procedures, and in most cases, the lender is the only under-writer. As such, you can have the money in a few days.
As long as the real estate investment makes sense to the private money lender, your deal will be funded. If it will make enough residual income to make interest payments and it secured by a real estate property worth more than the money invested in it, your deals will most likely get funded.
3) Less expensive
Private money is much less expensive than a business partner. While most partnership transactions will be split 50/50, private money lenders will ask for 8% to 15%. There are no points or origination fees that you get in hard money.
4) Few restrictions
No traditional or hard money lender will lend you their money if it involves creative financing. This is where most real estate investors get stuck. For example, if you take over existing mortgages, your real estate investing deals can only be funded with private money.
How do you convince private money lenders?
First, it is important to understand that nobody will trust you with their money if they do not trust your capabilities. As such, it is important to have a real estate investing website for seeking private money. The website should be simple and serve to convince potential private money lenders that your real estate deals are the best to invest their money with.
The website should also offer a way for them to sign up to become a private money lender.
Secondly, a business plan and success kit is important for convincing private money lenders. Any private money lender will want to see the type of deals you have done. If you do not have an impressive credibility in past deals, you must prepare a precise business plan for each deal showing all the numbers such as comparable sales, inspections, repairs cost estimates, rents, profit potential and so on. The clearer you can make this information, the more likely that your deal will get funded.
Ultimately your real estate investing business will flourish with more supply of readily available, cheap cash for your deals with private money.
