Private Money Lenders
What is a Private Money Lender?
Private money lenders are companies that lend money to real estate investors. The key distinction is, they’re not banks. That’s important because it means they offer faster, hassle-free loans.
With private money, factors like credit score, cash on hand and yearly income are still important. That said, these points are not as strictly scrutinized as with a bank loan.
Private lenders let fix-and-flip or rental unit borrowers make attractive, fast cash offers. They provide more flexibility in terms of simultaneous loans, and they often include repair costs, which banks won’t generally do.
Private Money Lenders Offer Faster Loans
Private money lenders typically put money into buyers’ hands within a few days to a couple weeks. Compare that to the month or two a typical bank loan can take.
That’s crucial, because in today’s real estate world, the most profitable deals don’t wait around.
Another speed aspect of the private lender is simultaneous loans. Private borrowers can finance several deals at once without the tight limits banks place on loan quantity. This ability to act fast and multitask means a more agile, scalable investment business.
Private Money Lenders Cut the Red Tape
We all know credit checks are necessary. The trouble is that for the real estate investor, time is almost literally money.
Like banks, private money lenders look at the borrower’s credit history, available cash, and income. However, their requirements in these areas aren’t quite as strict as banks. Private lenders tend to place more weight on the value of the investment.
Private lenders streamline the approvals process. With a private money lender, investors can expect a higher chance of approval, and a faster path to closing.
Private Money Lenders Are More Flexible
Private money lenders have less rigid guidelines than banks do. Private lenders typically finance up to 90% of a property’s purchase price.
Private lenders also often loan money based on the purchase price plus repair costs. Banks rarely, if ever, finance repair costs when lending money for a property.
With fix-and-flip deals, private money lenders offer shorter term loans, typically about a year in length. For purchases of long-term rental units, real estate investors can apply for a 30-year fixed rate loan or an ARM.
Overall, private money is less strict, faster, offers greater flexibility and is more geared toward the fix-and-flip real estate investor or the long term buy-and-hold rental investor.
Private Money Lenders Benefit Real Estate Investors
Banks do a great job financing residential home purchases to borrowers with perfect credit. For the fix-and-flip or rental hold investor however, they leave a lot to be desired.
Banks place tight restrictions on property loans, including stringent credit and financial background checks, rigid limits on simultaneous loans, and long periods of paperwork and red tape before the money changes hands.
For long term rental or fix-and-flip investors, private money lenders offer the most cost effective and efficient way to scale up a profitable business.