Why You Should Be Finding and Using Private Money Lenders
Category : Hard Money Loans , Real Estate Loans
Real estate investing requires fast available money. If you are working hard, and have many deals underway, you may quickly find yourself running into a very common financing problem for investors, the finance wall. You have hit the maximum amount of loans and debt your bank is willing to deal with you on. Other mortgage companies are shying away from the deals, due to your portfolio, and amount of loans. You may not be large enough, or attractive enough at this point for commercial loans. This is the time to find and start using private money lenders.
Private money lenders are exactly what it sounds like. These are family members, friends, and other local investors who have ready cash, looking for opportunities to get a good return on their investment. Don’t trouble yourself asking other investors who their private lenders are. Even if they don’t laugh at you, they are not going to provide you their carefully cultivated, and protected list. These are the people they turn to for making their deals, and if you empty the coffers of their private lenders, their deals would fall through.
The easiest place to start finding private lenders is with family members. If you have any family members who have built up a sizable nest egg, you may be able to offer them better than average returns on their investments. This can be especially true today with low interest rates on CD’s, and the low returns on investments in stocks and bonds. Make sure you inform them about your exact plans including the potential risks. Expect to pay a higher interest rate than a standard mortgage loan, your private investors deserve a good return on their investment.
If you need to search for other potential private money lenders, you can start with professionals in your area. Doctors, Lawyers, CPA’s, Dentists, and Executives often have money they are wanting to invest in high profit investments. Don’t expect this to be an easy sale. They earned their money, and saved it by being smart, and investing well. You will need to have a detailed plan on paper including your proposed costs, renovations, and strategies for making a profit on the property. You will need to lay out whether this is a short term investment for flipping a house, or a long term proposal with rental property.
One critical aspect of finding private money lenders is establishing a great reputation as a successful real estate investor. Once people know your property investments result in profits, you may have private money lenders calling you, wanting in on the action. Guard your list carefully, and make sure your investors always get a great return on their investment. Most of your private money lenders will be in your local area. Very rarely does anyone from a great distance choose to invest in property they cannot see.
Using private money lenders may quickly become your preferred resource for borrowing money. Just make sure you follow all the same precautions, and legal procedures you would with a bank loan. You need proper legal protection in place for both sides of the agreement, clearly stating each person’s risks and obligations.
Using private money lenders is one of the most important ingredients for building your real estate investment business. With a little hard work, lots of honesty, and integrity, you will soon have your own list of private money lenders to turn to for your next hot deal.