Private Money Lenders for Real Estate: Why Use Them?
Talk to just about anyone, and they’ll tell you that real estate is a great investment. After several bad years, the market is booming. So, what happens when you find that perfect deal and can’t come up with the funds? Should you consider private money lenders?
Like everything else in business, there are pros and cons to private financing. A good rule of thumb is to discuss your financing concerns with an experienced real estate attorney. For one, if something sounds shady, you may be swayed away from potential trouble. Obviously, nothing is worse than a sound investment turned sour.
Private Money Lenders and Due Diligence
Do you know one of the top reasons investors turn to private money lenders? In one word, time. If you go through the process of securing a loan from a big bank or mortgage company, the process can stretch over several months. Without question, you’ll feel like you’ve submitted the same information more than a couple of times. And, your recollection will be totally on point.
Expediency makes private financing sound attractive. However, just because it’s quick and easy, doesn’t mean it’s the right idea. For one, due diligence is crucial when it comes to investigating private money lenders.
Here are some things to look for when considering private financing:
- Hidden fees – They may be written in the fine print
- Interest rates – Make sure they are spelled out. Also look to see if points are assessed
- Legitimacy of the company – Ask for references and look for reviews
- Requires money from you – This is a big red flag that should put you on alert
When it comes to securing private financing, an experienced real estate attorney can help you determine the authenticity and feasibility of the proposed loan.
When Should You Consider a Private Money Lender
There are a few instances where it really makes sense to consider a private money lender. As we discussed, there is the issue of timing. You don’t want to lose out on an investment because you can’t come up with the funds when required.
However, there’s more. Some deals become sweeter with cash offers. The seller may not want to wait through the mortgage process. More often than not, bidding wars are stopped when cash offers hit the table.
How’s your credit? If there are problems with your credit, it could be that private financing is the only way you can make the real estate investment. It may cost you more to do so, but you could still come out a winner.