The Flexibility of Private Money Lenders

In fact, a lot of people can potentially become very successful investors in real estate, but very few people actually try. Most do not try to get rich this way because they think they can't; they don't have the money to invest in properties and they believe they cannot get financing by going to a bank for a loan. However, there is a better and easier way for you to finance your properties if you want to become a real estate investor. You do this through what are called private money lenders.

Private Money Lenders Explained

A private money lender is an individual who has extra money to lend and who wants to make a pretty decent profit off of that money. This is the most flexible way to finance properties for real estate investors. As a real estate investor, you get to borrow money from a single individual, who isn't affiliated with any institution. Instead, they're just like you and me; therefore, the process can be much less impersonal and formal. While banks and lending institutions have rules and regulations that have to be followed when lending out money, private money lenders do not have the same restrictions.

Finance Your Properties Through a Private Money Lender: a Better Way

As previously mentioned, unlike banks and other traditional lending institutions, private money lenders are not bound by strict rules and regulations imposed by a board of directors or harsh credit standards imposed by Fannie Mae and Freddie Mac. Instead, private money lenders have the option to choose who they want to invest in, regardless of an investors financial statements or credit ratings.

What are the Benefits of Using a Private Money Lender?

As an investor, you can appeal and make your case to a private money lender, explain to them why they should invest in your property, and allow them to come to their own conclusion. But the benefits of a private money loan do not end there. If the lender is interested in your offer, the two of you can then work out a financing and repayment arrangement that benefits both parties. You and the lender can both state your expectations and agree on an interest rate and payment schedule that makes both of you happy.

A private money loan is a short-term loan and therefore, the private money lender may be willing to wait until after you have refurbished and sold the house to receive any payments. This lets you focus on fixing and selling the property instead of having to worry about paying for a property that hasn't actually made you any money yet.

The Downside of Traditional Hard Money Loans

While private money loans benefit both borrower and lender, bank loans usually give the benefit to the bank. They get to set the standards on their side, and if you are lucky enough to get a loan through them, they also get to set the interest rate and determine what other fees might be. In general, you're not going to be allowed to make payment arrangements or other special arrangements, but will have to stick to the schedule the bank sets. This means that even if your credit history is perfect, and even if you can receive financing from a traditional lender, using a private money lender may still offer you more advantages.

Private Money Loan Benefits Recap

Private Lender can lend freely and does not have to abide by tough rules and restrictions. Allows real estate investors with problematic personal credit histories to secure financing for their properties.

Opens the lines of communication between lender and borrower. Borrower can negotiate an interest rate or flat fee that is almost guaranteed to save money over a traditional loan.

Both the borrower and private money lender can negotiate payment arrangements that will benefit both of them. The lender may even be willing to forgo payments until the borrower has sold the property.

No financial application is required. Borrower can appeal directly to the private money lender and convince him to take a chance on the property in question.

The private money lender has the opportunity to see the borrower as an individual with goals instead of simply seeing the paper application that does or does not pass rigid, predetermined guidelines.

All of these benefits make private money loans the most flexible funding option for real estate investors. A private money loan allows you a variety of options and opens the door for many real estate investors who would otherwise be turned down by a traditional lender.