Smart real estate investors will know that loaning from banks and other financial institutions are not always ideal. Banks have strict measures and requirements in place, and it can take time to secure a loan. Although this sort of mortgaging can work for typical homeowners looking to buy property, for investors who want to cut quick deals and expand their investment portfolio, a more efficient agreement is needed.
This is why investors turn to private money lenders, who loan capital and make a profit based on the interests loans. They are not associated to any financial institution; instead, they are composed of a private individual or organisation and use their own money (or sometimes, loan from banks and other investors) to fund the real estate investor’s project.
By lending on a smaller scale, private money lenders are able to have a more direct contact with the borrower, and thus are able to customise terms depending on the needs of both parties. Although their interest rates may be higher than banks, real estate investors find that this is a cost-benefit to fewer requirements, faster turnaround, and flexible terms.
Below are some of the reasons why real estate investors consider private money lending options.
Flexibility of terms
This is perhaps one of the biggest benefits that private money lenders can offer to real estate investors. If a borrower may not have an excellent credit rating and was denied a loan by a bank, a private money lender could be more lenient in negotiating the terms of payment. This is not to say that they don’t look at a credit score; for lenders, they look at the value and opportunity of the deal vis-á-vis payment packages.
Faster approval and release of loans
While securing bank loans can take months, securing a loan from a private money lender can be done in a few days or weeks. Because the lender deals with the borrower directly, it’s easier to clarify any questions or validate the information. The negotiation process is thus more efficient and streamlined.
The speed at which deals are closed is extremely important in the real estate world, where the right timing can be the make-or-break in the success of securing the property.
A more knowledgeable idea of the local market
Most private money lenders belong in the same locality as the borrower, so they are likely to have a lot of insight into trends in real estate and market prices. They will be able to spot a good investment and the right profit margin.
For real estate investors, this is an added benefit because it makes pitching their project a lot easier when the vision of both parties is aligned. Building a good relationship with the lender is also key because it establishes trust and legitimacy.
A lasting partnership is built on strong positive connections, something that larger financial institutions may not always be able to provide. By working with private money lenders, real estate investors can keep up with the fast pace of property negotiations and expand even more opportunities for future investments.