In case you have made the decision of stepping up into the world of property investment, you may find a bright future in that. However, finding a source to finance your project as a starter is the most critical of all steps. This applies, whether you plan to invest in single homes or wish to act as a landlord, you will definitely need a good deal of funding. This is where private money lenders can save your day.
The one critical thing about investing in real estate is that it is completely different from buying a private property. Most people who invest, prefer to get their funding from private money lenders as it is far more affordable and allows great flexibility. Furthermore, it allows them to establish good business linkages and long-term collaboration in which the flow of benefits is two-sided. As one grows his/her investment business, both the investor and the private lending company happens to enjoy their share of benefits.
Who are Private Money Lenders?
Simply put, a private money lender is a company that provides funding to investors in the form of loans. These companies/individuals are in no way affiliated with government institutions such as state banks. The loans provided by these lenders are secured by a deed of trust, and usually by a note. As compared to hard money lenders, private money lenders are more based on a relationship with the investor.
Why should one choose private money lenders?
Often at times, those who do not have enough experience in the field of real estate investment, spend a way too much of their time in finding deals. However, most of them do not consider the importance of knowing how to raise a capital from private money lenders effectively. Raising the equity capital is just as important as finding a deal, and this is something that entry-level real estate investors should note. After all, if one does not have enough money to close a deal, then there is certainly no point of putting in all the effort of setting it up in the first place. This especially applies to those investors who do not have a good amount of money saved as a capital.
This is where private money lenders can save the deal! Hence, one should spend an equal time in learning about raising a capital from private money lenders while looking for deals in the meantime.
There are in general, three types of private money lenders.
- Primary
In the primary category, your friends, relatives, and immediate family members might fall. These are the potential private lenders that you are directly related to. Usually, these are the lenders who are the easiest to target. However, many people do not prefer to develop professional relationships with their immediate families.
- Secondary
In this category of lenders, the mutual fall in. For instance, consider a social media platform. You get acquainted with a friend of your friend, who is willing to provide you some funding at a fixed interest rate. Such a money lender would fall in the secondary category.
- Third party
This is the most common category to which most of the money lenders belong to. In general, this category is constituted by private money lending companies or professional individuals who happen to be total strangers. This is where the majority of the private money lenders will fall in.
Major traits of a good money lender
In order to make sure that all the deals go smoothly without any hassle, it is crucial for an investor to choose the right money lender.
What should one look for in money lenders though? This question will definitely hit your mind. Here are a couple of traits that if present, signifies a good money lender.
- Rate of Responsiveness
One of the major reasons why investors might want to go to private money lenders instead of banks is that deals are finalized far more quickly. As compared to a bank or a finance company which takes weeks to finalize a loan, a private lender would do the same in a matter of days. The more responsive and efficient a lender is, the more beneficial it is for the investor. Hence, make sure to consider the responsiveness of a lender whenever you set eyes on the perfect property. Certainly, you would not want to waste any time at all.
- Transparency at every step
Before closing each deal, it is extremely crucial to remain aware of everything that is happening behind the curtain at every step. Highly reputed lenders consider it their duty to keep an investor informed at all times. Moreover, such money lenders are extremely vigilant of each and every loan guideline and regulation that is set by the local government.
- Competitive rates
Another trait of a good money lender is competitive rates. It is extremely important to note down the interest rate and all the points mentioned as ‘terms and conditions’ of the loan. Usually, traditional lenders happen to have a lower interest rate for a single-family home mortgage as compared to a private lender. Similarly, it would not be right to compare the interest rates of a finance company or a bank, with that of a private lender. That would totally be analogous to comparing vegetables with fruits. Instead, when you are shopping for private money lenders, consider the rates of money lenders that fall in the same category. This is a good investment practice to follow. Remember! A highly reputed private money lender will always have competitive rates, with a good name in the industry. Once you have compared the rates of various options within the same category, consider what suits you the most depending on your requirements.
Apart from checking the interest rates and points, it is highly important to consider the down payment and other standard fee procedures that a lender asks for. Each lender happens to lay down different terms, however, some of them are common among them all in the industry.
