When it comes to real estate business, time and money is the name of the game, and in order to succeed in this business, chances are you will need financing. With more and more real estate investors searching for alternative financing options, other than bank loans, in order to finance their deals, private money lending has emerged as a viable option today. Often referred to as hard money loan, a private money loan is a real estate loan made by private individuals or group of investors. Unlike banks and other traditional lenders, private money lenders are primarily interested in the value of the property being used as collateral and put much less emphasis on a borrower’s credit report and debt-to-income ratio.
Using private money loan allows investors to act faster on potential deals enabling them to get ahead of the competition and help many distressed homeowners by taking a problem property off their hands. In addition to offering flexible structure and no prepayment penalties, taking a private money loan also relieves the borrower from the hassles of numerous bureaucratic meetings and countless document verification and reviews.
Read on to find out five merits of private money lenders to real estate investors.
1. In the nick of time-
While traditional lending entities like banks and credit firms take months for approving the loan, private money lenders, on the other hand, take as little as 2 to 3 days. Some lenders may even approve you within a day. Private loan lenders make the approval process faster by cutting red tape in its loans. Lenders skip the process of determining a real estate investor’s credit score and go straight to the point by using the investor’s property as collateral. Since the hard money loan is collateral-based, the approval process takes little to no time.
2. Beat the competition-
Let’s face it, when a real estate deal is especially good, moving super-fast is a necessity. With traditional financing, that kind of speed is more often than not impossible. Furthermore, private lenders for real estate not only provide immediate funding, but also have fewer documents requirements, which enable the investor to not lose the profitable deal in hand and reap the advantages in abundance leaving the competitors in the dust.
3. Money matters-
With private money loans, real estate investors can borrow a much bigger amount from the lenders as compared to a bank loan. The reason behind this advantage comes from the fact that the loan amount is based on the collateral’s ARV, short for After Repair Value.
4. Last resort-
Private money loans open a plethora of opportunities to real estate investors who want to invest in properties, considering the fact that the lenders may provide loans to projects that conventional lenders have no interest in financing. It goes without saying, that banks are extremely risk-averse lenders and will not grant a loan to cases falling outside of their lending criteria. In situations like this, real estate investors can take the help of private loan lenders to get a loan quickly for buying the property.
5. Flexibility sweet flexibility-
Generally, financial institutions take a one-size-fits-all approach, when it comes to loan’s terms and condition, giving little to no room for flexible term structure. Private money lenders, on the other hand, can efficiently structure the repayment and collateral release terms in ways that are favorable to both the lender as well as the borrower.
At the end of the day, private money loans edge out other ways of funding real estate properties due to the fact that the lenders are not handcuffed to the stringent rules and regulations that govern conventional lending and are a good source for getting a loan in no time.August 29, 2018