If you need money for your next real estate investment, a private money loan, also known as a direct hard money loan, could be the answer.
In the real estate financing industry, private money lending refers to money loaned to real estate investors by commercial non-bank lenders rather than a bank to get a fixed rate of return or other options.
Why is this called private, and why are banks not handling it?
Banks typically do not lend to investors on properties that need to be improved to achieve market value or 'after repair value' (ARV). Savvy investors with available cash in a self-directed IRA or a broker account understand that they can fill the void left by banks and earn a higher return than they are currently receiving in bonds, the stock market, savings, and money market accounts.
This birthed a whole new type of lending market, and it has become a reference point for real estate investors.
There are several reasons why investors should seek out these loans from a private lender rather than a traditional financial institution. One very important reason is the fact that individuals and organizations typically have more liquidity and fewer restrictions than traditional loans and grant funding much faster as a result.
Having said that, you might be wondering what private money lenders look for when determining loan eligibility. Continue reading to find out more!
What Do Private Money Lenders Watch Out For?
Although each private money lender is unique and has different loan requirements, the following are a few factors they will generally consider to determine whether investors should accept your proposal:
1. Property profitability
Commercial non-bank lenders or private money lenders are interested in the potential of your prospective property; most investors are after a cash-positive asset. For instance, if you are a real estate investor and can demonstrate that you can purchase a house for low fees, perform few and reasonable repairs, and make a decent profit from the resale, lenders will be more inclined to lend you money.
Furthermore, if you are unable to flip the property or repay the loan, the lender will be able to sell a suitable property for a quick profit rather than letting a property with no profit potential sit in limbo until another investor is keen to risk purchasing it as it is and at a better cost.
To demonstrate to potential lenders that your property has the potential to be highly lucrative, provide approximated values of nearby homes so lenders can see and recognize how much money is to be made. A financial representation of the property's potential for appreciation may be sufficient to persuade lenders that the risk is worthwhile.
2. Your level of dedication
Private money lenders like to see that you are as invested in the property as they are—and that you might also lose just as much. You can demonstrate to lenders that you are ready to go through with this investment by offering to put in a larger down payment.
3. Your risk tolerance
Private money lenders also take your real estate history and investment experience into account. Have you formerly financed real estate projects? Do you have ample expertise in successfully renovating a home for rent or sale?
If it's your first time going into real estate investing, this does not diminish your chances of receiving a private lender loan. Make a larger down payment, or show the lender your business plans for the property, such as quotes for future renovations and a general budget. Showing private lenders how well you're prepared to take on the project shows your dedication, a trait that impresses investors.
Conclusion
Whether you need to flip a house or get a bridge loan, getting a loan via private money lending is an uncomplicated and fast way to get the funding you want.
If you want to buy a home, why wait for a traditional loan you might lose to another investor when you can get one from a private lending firm? With awesome lending rates you can find nowhere else, it's easy to see why a private money lending firm in Houston, is preferred for astute real estate investors.