Financing your deals is the most important thing in developing your real estate investing business, and finding a private money lender and hard money lenders should be something you look for daily.
With traditional financing being very tight for investors it’s time to search out other alternatives. The best alternative is finding a private lender and hard money lenders. Despite the economy there is still a tremendous amount of money out there and because of the economy a lot of this money is sitting on the sidelines. A lot of investors have taken their money out of the stock market and are waiting for things to improve. Investing their money in real estate is a terrific alternative. Most folks want to get involved in real estate investing but don’t have the time or knowledge to get started, this is where the rehabber / real estate investor can step in and help. Real estate investors can provide these private lenders with secure investments by having them fund properties that were secured for 50 to 60 cents on the dollar. This becomes a true win – win situation, real estate investors can fund more deals and a private money lender can earn a nice return on their money. Private money lenders and hard money real estate funding can provide real estate investors more flexibility than banks and other financial institutions.
Anyone that buys house’s repairs them and resells them for a profit can benefit from working with private money lenders.
If this describes you, then you will find this information invaluable and it could help you buy more houses and make more profit. Hard money and private money lender may be a term which you are familiar with, but just in case, let’s first look at what it usually refers to; funding provided by a private individual or group for the purpose of purchasing and repairing a house. This type of lending matches perfectly for all types of real estate investors. Hard money and private money lenders make loans for other purposes, but the majority of the loans that they make today are to people like you and me.
[pullquote align=”normal” cite=”BiggerPockets.com“]Definition: A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. Private money lenders are generally considered more relationship-based than hard money lenders.[/pullquote]
In order to protect as much of your capital as possible and keep your cash flow liquid, you need money for both buying and repairing the home. Since the guidelines that banks follow are different from those of the hard money real estate lender, you can get all of the money that you need from one place and at one time. You may even be able to add in the closing costs.
Private money lenders will want to know that their money is protected.
There are a few things you must do to make a deal to a private lender enticing. You need to buy low, 60-70% of ARV (after repair value), you need to provide them with a promissory note, a mortgage deed of trust, and add them as additionally insured on the insurance policy for the property. Make sure you structure your deals interest only and be sure they get a guaranteed minimum return on their investment. You don’t want to have a lender fund your deal for $100k and then turn around and sell a couple weeks later, this will not be worth the while for the private lender and they may look elsewhere to lend their cold hard cash.
Now your probably curious how to find these private money lenders. The first thing you need to do is make a list of 10 people that you can speak to. These could be friends, family, co-workers, etc. You want to come across confident and present it as an opportunity. Be sure to know what your program and what your willing to pay. And remember you can always say ‘NO’. If a private money lender is looking to take a % of the profit or wants unreasonable terms – move on, their is plenty of other folks out their who will jump at the opportunity. Finally, be prepared – have a private lending packet or something you can give to your prospects that adds credibility.