Benefits of Working with Private Money Lenders

By : Sacha Ferrandi

private money lenders

Real estate investments offer plenty of benefits, and taking the right steps can lead to lucrative profitability. Unfortunately, real estate investments aren’t always as straightforward as they seem, and buying real estate property can be a daunting challenge. One of the first and most pressing tasks you’ll encounter comes in the form of financing. Buying a residential property is expensive, and investors looking to purchase and rehab homes will shell out even more before they can even begin to hope to break even.

 

Traditional lending institutions have tightened the reins on loans, especially when it comes to fix and flip ventures. If you’re looking to purchase a private home and fix it up, you’ll likely need to look for alternative funding. Alternative financing methods have become the preferred route for many entrepreneurs looking to diversify their portfolio and make their mark on the real estate industry.

 

Cue private money lenders, your new best friend.

 

Private money loans are a form of short-term financing that’s secured by real estate. These loans are funded by private investors, and secured by a lien on your tangible real estate assets.

 

 

So Why Work With Private Money Lenders?

 

 

More Lenient Regulations

 

Borrowing money always comes with its caveats, but borrowing from public banks and financial institutions can involve numerous legal requirements and stringent restrictions. Due to government sanctions, you’ll be subjected to a bevy of paperwork requirements, zoning laws, and more. A private lender involves much fewer sanctions, meaning less red tape for you to deal with.

Because private lending companies are generally much smaller, and subjected to less stringent regulations, they are more apt to be flexible with your terms and approval rates.

 

 

Easy Approval Processes

 

Private money lenders are mostly concerned with collateral. If you’re looking to purchase an investment property, the private money lender will offer as much as your property is worth. If you’re borrowing against another property you already own, the lender will care about that property’s value. If you have viable equity in a property, your loan is likely to be approved. This easy approval process can expedite the funding process, which is key for many investors, especially those looking to jump on investment opportunities when they arise.

 

 

An Expedited Timeline

 

The new regulations regarding mortgage lending have lengthened the amount of time it takes to get approved for and get funding from traditional lenders. Hard money loans are fast. It can often take anywhere from 30 days to a few months to simply get approved for a traditional loan—tack more time on top of that to actually see the funds. Private money loans offer a significantly quicker approval time. Some loans can be approved within minutes, with funds distributed within a weeks’ time. Consider this scenario: You come across the perfect fix and flip property, but competition is fierce. If you can’t secure the funding quickly enough, you’ll lose out on the real estate opportunity of your career. In cases where time is of the essence, private money lenders trump traditional lenders.

 

 

Easy Terms

 

Traditional lenders and public banks place a great deal of emphasis on credit score when it comes to the loan decision. Those with foreclosures, bad credit scores, or bankruptcies on their record aren’t likely to get approval for real estate loans. While private money loan investors will consider credit scores, they set their own criteria for acceptable credit. Generally, private money investors are more receptive to lower credit scores; as a general rule, conventional mortgages require credit scores higher than 640. Compare that to private lenders, who generally require credit scores higher than 550.

Traditional mortgages are limited; the typical lender won’t issue more than 4 to 10 mortgages to the same individual. Private money lenders don’t put a cap on the number of hard money loans an individual can apply and be approved for.

 

 

Numerous Property Types

 

Traditional loans are generally only available for those looking to invest in single-family homes, two to four-unit homes, and certain types of commercial properties. Private money lenders offer financing for a variety of properties that fall outside of conventional parameters. These can include rehab loans for homes intended for fix and flip ventures, mixed use properties, non-owner occupied rentals, and other real estate transactions.

If you’re interested in investing in something other than a single-family home, a private money loan is likely your best bet. From apartment buildings to duplexes, condos to multi-unit homes, this type of financing covers numerous investment opportunities.

Another important factor? Conventional mortgages and loans are generally only issued on homes that are considered to be in good condition. Traditional institutions aren’t generally willing to fund the purchase or renovation of a house in disrepair. Private money lenders often lend on properties intended for renovation.

 

 

More Flexibility

 

If flexibility is your top priority, you can’t beat the benefits of hard money lending. Private money lenders don’t use a standardized underwriting process, meaning each deal is looked at individually. That means your loan will receive individualized attention from a team of lenders—good luck attempting to get that kind of treatment from a traditional lending institution. This individualized attention may give you the opportunity to tweak certain details, whether that be your repayment schedule, interest rate, or other facets of the process. Hard money loans are available in a variety of different terms. From payment plans to length of term, you can generally work with a private money lender to tailor a hard money loan to your needs.

 

 

More Forgiving and Understanding

 

Sometimes things don’t go the way we plan, but smart investors prepare for the potential of this less than savory outcome. Mistakes are made, the market doesn’t do as well as expected, or your house sells for less than you anticipated—do you have any hope of debt forgiveness? With traditional lenders, no. With private lenders? Maybe.

When compared to corporate financial institutions, private money lenders are generally more willing to forgive late payments. However, this comes with its own set of caveats. Your lender will forgive debt when it benefits them financially. Their main priority involves collecting all of the principal and interest you still owe. If they realize they simply won’t get all of their investment back, some lenders may elect to modify the terms of your loan—which often includes some type of debt forgiveness.

Don’t count on debt forgiveness, though. While more common amongst private money lenders, it’s still the exception—not the rule. In most cases, debt forgiveness is granted when the lender realizes they can make more by allowing you to repay most of your debt, instead of reclaiming your property. To receive as much payment as possible, private money lender may modify the terms of your loan in various ways. They may also reduce your total debt burden to make your monthly payments more manageable—and more likely to get paid off.

 

Conclusion

 

If you’re looking to invest in a real estate property and don’t have the personal capital to finance your venture, a private money lender could be the right solution. With quick approval processes, easy terms, and flexibility on your side, your real estate venture is well-poised to be a success. Consider private money loans for your upcoming real estate transactions and advance your investments.

Sacha Ferrandi

Sacha Ferrandi is the Founder and Principal at Source Capital Funding Inc., a California hard money lender. As an expert in commercial and residential real estate with over 12 years of experience in the industry, Sacha works with properties of all varieties. Since the inception of his company, Source Capital, he has been responsible for overseeing the entire firm’s operations including the funding of hundreds of millions of dollars in private loans.