Investment property financing is a common obstacle among real estate investors. Very few investors are able to fund real estate deals with their own money. More often than not, investors will need alternative ways to obtain real estate investment financing. There are many ways of financing real estate investments. However, unwilling or unable to use commercial or hard-money lenders, many investors wonder how to invest in real estate with little money. One way is through using private money lenders for real estate.
Related: The Top Real Estate Investment Tips on Financing an Investment Property
Private money lenders for real estate are non-institutional lenders who provide short-term loans to investors for the purchase or renovation of an investment property. The loans are usually secured by a real estate asset. They operate differently from institutional banks. Private lenders usually offer upfront investment property financing with a particular payback period for investors who want to raise the value of a real estate property over a short period of time. The appeal of private money lenders for real estate is their ability to bring efficiency and speed to every transaction when it comes to finances.
When Should You Use Private Money Lenders for Real Estate?
Even though you can finance your real estate investments using different methods, there are scenarios where private mortgage lenders are the best option.
Here are examples of when it is best to use private money lenders:
1. When you need financing immediately
Being able to secure financing in a timely fashion is very important in real estate investing. You may find a good real estate deal but if you lack the money to fund it, it is just a waste of time. Investors looking to acquire lucrative real estate deals will often need working capital immediately for them to close the deal. Seeking private money lenders for real estate helps investors to capitalize on efficiency and speed when making a deal. Instead of having to wait for long periods with banks, real estate investors can swiftly move to secure deals that are time sensitive.
Private money lenders for real estate will demand more interest than conventional banks and lending institutions. However, the real estate investor benefits from the volume and efficiency as they can close more deals within a shorter period of time. As a real estate investor, this is a valuable asset to have.
2. When you need cash
Another attractive thing about private money lenders for real estate is the ability to acquire cold, hard cash. This enables real estate investors to make offers that they normally would not be able to make. This is significant because sellers are normally enticed more by cash offers. This approach is especially ideal for real estate investors looking to acquire distressed properties or bargain deals. You can win a bidding war and also avoid paying a higher price by increasing your down payment. Those who can afford to make an all-cash offer usually have an upper hand on a sale. All-cash offers are more likely to be accepted because many of the distressed sellers prefer not to deal with the burden of a bank. Moreover, sellers usually prefer cash offers because of the uncertainty of conventional mortgages. Therefore, the power of cash offers can help real estate investors to fuel more deals.
Related: Buying an Investment Property: Cash or Mortgage?
3. When you have bad credit
Having bad credit is often considered as detrimental to your real estate investing career, especially when it comes to financing rental properties. However, private money lenders for real estate are suitable for those that have below-average credit scores. With private lenders, you can acquire funds without being subject to traditional credit requirements and guidelines.
Banks and credit unions generally avoid working with real estate investors with bad credit or who have no proof of a steady income. Nevertheless, private money lenders for real estate will give out loans that the average bank wouldn’t. Real estate investors can sit down and discuss their options, including negotiating the amount and terms that make sense for them. However, this comes at a cost. Using private money lenders for residential real estate will involve a higher interest rate than other loans. It is important to note that hard money lenders for real estate will have their own set of costs. Therefore, real estate investors should conduct their due diligence before selecting one.
How to Find Private Money Lenders for Real Estate
There are many private money lenders out there. However, the most challenging part is finding one that is willing to fund your deal. However, with the right preparation and mindset, you can find one you can work with.
Here are some tips on how to find reputable private money lenders:
1. Tap into your existing network
Make a list of the people you know such as family, friends, and colleagues. Ask them if they would be willing to invest in real estate. People you already know are more likely to invest in your project than strangers. However, it is important to note that you may risk friendships and relationships. If you don’t want to risk your relationships, it is better if you don’t borrow.
2. The inner circle of your friends and family
Some of your friends, family, and colleagues may have invaluable connections outside of your current network. If your existing network does not have anyone ready to invest, you can ask them for referrals. They may have people in their circle who may be a good fit.
3. Attend live events
Attend live events that attract investors such as your local real estate investor club meetings and conferences. Such meetings are usually attended by private money lenders looking to connect with prospective borrowers.
4. Network with other real estate professionals
Building a strong investment network is critical to finding private money lenders for real estate to work with. Network with other real estate professionals such as real estate brokers, title companies, real estate agents, fellow investors, and attorneys. Such real estate professionals can refer you to an experienced private money lender.
Related: How to Build and Maintain a Real Estate Investment Network
You can search on Google for “Private money lenders for real estate” + your area. In the search results, you will be able to find a list of private money lenders in your area. You can then contact and evaluate them.
6. Social media
You can also find private money lenders on social media platforms such as LinkedIn.
The Bottom Line
One powerful advantage that any real estate investor can have is their ability to secure capital. The best real estate investors not only have real estate skills and resources but also have access to working capital when needed. This is where real estate private lenders come in handy. Moreover, private money loans have relatively easy qualifying terms.
Investors who want to make their mark in the real estate market should consider using private money lenders for real estate. This is one of the real estate investment loans that they can use to take their real estate business to the next level. With the right approach, the use of private money lenders for real estate can help investors acquire more deals and boost their success rate in the real estate investing business.
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