Private money lenders refer to companies or individuals who loan money for real estate transactions, but they are not a bank or a financial institution. Their security is a note or a deed of trust or a real estate property. Their money lending is based on relationship-based and easier than with banks. The loans are short-term and long-term and can be used for renovation or buying a property such as a condo or a family house. You can get the best payday loan that you want from a reliable money lender.
There are three circles of private money lenders. Each of them is based on your relationship with the borrower. They include:
- The Primary Circle
The primary circle consists of family and friends. They are the first people to turn to for a loan when you need money to buy a property or anything regarding real estate investments. The main reason to turn to them is that it’s easier for them to listen and trust you with their money. Since they have no means of checking when a deal is good enough to fund, there is a high chance of getting into problems, especially when the borrower defaults. It only works when the lender and the borrower get clear about the downside and risks involved. If such a deal goes sour, you lose not only the property, but also valuable relationships.
- The Secondary Circle
The secondary circle of private money lenders consists of professional acquaintances and colleagues. They are people who you work with directly. This group of people will be receptive and willing to lend you money. What’s more, this group is likely to have money than in the primary circle. They can help you raise equity and invest in real estate assets. However, there are also drawbacks of working with the secondary circle. Some of these people not likely to believe in you and it can take you time to raise the amount you need. Besides, you have to create an excellent presentation and have enough time to meet the investors for dinners, luncheons or other meeting setups.
- The Third Circle
The third circle mostly includes investors from your networks. These are people who you have not interacted at a personal level. This is the largest capital pool, but it is not easy to convince. So how do you even find them?
- Use various contact sites where you can post any investment opportunity you may have. Then contact different potential investors but do it within site for security purpose.
- Use of the investor mail list. It is a creative way to reach potential capital investors, but you work with a list broker.
Who can borrow money from private lenders?
Private money lenders offer loans to anyone looking for a short-term loan. But they are not limited to this; long-term investors who want to renovate a property can also get a loan as they wait to mortgage or refinance the property.
The following people can find a quick financial solution from private money lenders:
- Fix and flippers, who want to buy, renovate and put a property on sale within a year.
- Both long-term and short-term investors are looking for quick financing.
- Any buyer who intends to buy a property, renovate it and then seek refinancing before getting a mortgage.
- Anyone who wants to invest long-term but doesn’t qualify for conventional loans. But will refinance at some point when they are eligible for one.
- A long-term investor looking for money to season a particular property.
Private money lenders issue loans to investors who are looking forward to making houses and then use them to get more money. They are a quick way to find funding for investors who cannot afford to purchase or renovate a prime property that can fetch more money afterwards.
Why You Should Consider Private Money Lenders
Private money lenders such as 365 Credit Solutions should be the first on your list when looking for a loan. The most significant advantage of these loans is that you can quickly buy or fix a property that is in bad condition. The whole process of approving is faster, and you get the cash quickly, therefore allowing you to buy a property, which may be on high demand. Other reasons to borrow money from private lenders include:
Credit Qualification is Low
Third circle private lenders do not have strict credit qualification. If you have at least a 550-credit rating you are good to go. Check your score online before you apply for a loan with private lenders.
Private lenders approve loans in a few days. Some will even take minutes, especially in the primary circle. These are people whom you can freely discuss with about the urgency of the loan.
A private lender can give you money to finance a rehab. Most of them have such loans, known explicitly as rehab loans. They are used to buy and renovate a property; all in one loan. This is different from a mortgage loan, which you can only get if your house or real estate property in good condition.
Drawbacks of a Private Money Lender
Short Repayment Period
The loan has to be paid within a short period. Private lenders are not willing to negotiate for long period loans, unlike conventional mortgages. It is hard to find any private lender willing to offer a loan that can be repaid in more than three years. They usually fall between one and three years. What’s more, it’s not unheard to hear someone lending money that must be paid in less than six months.
Potential High-Interest Rates
Private lenders charge a higher interest rate from 7% up to 12%, and sometimes it can be more. The conventional mortgages fall between 4% and 6%, not to mention that private lenders occasionally will include some fees for an appraisal and assess charges for prepayment.
The Bottom Line
A private money lender helps you fund property investment. You will find them online or have one recommended by friends and relatives if you are for third circle private lenders. They are the best because you check their terms and agree if they are favourable to you.