What Exactly Is Private Money Anyway?
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Welcome to my website! In this article, you are going to discover the two rules you must obey in order to be successful in getting private money for real estate investment purposes.
However, before we get into that, it makes sense for us to lay down some definitions so we are all on the same page. You may have heard the terms "hard money" and "private money" used interchangeably. While to a certain degree this is accurate, the true essence of each of these terms is radically different.
In the truest sense, private money would be loaned to a real estate investor directly by an individual. Typically this is a friend or relative who is willing to pony up the funds for you to do your deal. In this scenario, you would usually get a lower interest rate such as 8%, longer loan repayment terms and you would NOT have to pay points on the loan.
While this seems like an excellent option for private money loans, it's not a feasible option for the majority of people, especially in today's economy. If you think about it, how many people do you know with $100,000+ sitting around that they'd be willing to loan you? I'm guessing none.
Hard money is essentially institutionalizing this process. Hard money lenders have a group of people who are willing to lend their private money to real estate investors. In exchange, the lending institution underwrites the loan and services the loan for the investor.
With hard money, you'll pay higher interest rates and points on your loan because the lender gets paid out of those differences to provide their services.
As you can see with the hard money option, you are getting a private money loan, there is just a middle man that separates you and the person with the money.
Ok, so now that we are clear on the definitions, I'm going to reveal to you the two rules you must obey to be successful getting private money loans through an institution. That will be the scope of this conversation because I'm fairly certain if you had an individual who could lend to you, you wouldn't be reading this article right now...
And just to make things clear, I'm going to use the term private hard money loan for the rest of the article to encompass that we are discussing using a lending company.
Rules You Must Obey To Be Successful With Private Hard Money Loans
Rule #1 - be prepared.
We see a lot of people submitting loan applications without having a property even picked out yet. Getting private hard money loans is totally different than getting a mortgage for the house you want to live in.
Private hard money lenders can't really do anything for you until you have a property under contract. The reason being that they lend based on the credentials of the property, not you the borrower. You don't get pre-approved based on your credit like you do when getting a "traditional" mortgage.
Rule #2 - be responsive.
A private hard money lender does not have an unlimited amount of capital like the big banks. When they approve you for a loan, it's expected that you return phone calls, send in documents and close quickly.
The reason is they are committing investor money to your deal. If you are just kicking the tires and aren't serious about moving forward, you really shouldn't be applying in the first place. It's not fair to commit money to your deal that won't happen when there are people ready to go waiting in line.
Following these two simple rules will make sure you are successful getting private money.
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Where Do You Get Private Money Loans?
Let's talk about several different ways you can obtain private money loans for your real estate investment deals. We'll separate your options out by the categories we discussed earlier. If you are looking for true private money, the first place to start looking is at family or close friends that are well to do.
Find out if they have a self-directed IRA. These people can acutally use funds out of their retirement account to finance your investment. This is a little known secret that I'm giving you sort of tongue in cheek... and the reason for that is you have to really be careful going after your family and friends in this way. I've seen it ruin far too many relationships when you do it without having some experience under your belt.
My recommendation is that you use a hard money lender to get a couple deals under your belt and have some experience that you can show people before you ask them for their money. Another thing to consider is that if you do use hard money and get a few good deals done in a short period of time, you could have enough capital built up to fund your next deal without borrowing any money.
You can find hard money lenders by doing some google searches or visiting an aggregation database like http://www.hardmoneylendersonline.com.
And of course, you can look at the 35 different programs we have available here at DoHardMoney.com. We have direct access to 288 people ready to give you a private money loan in as little as 5 business days to fund your real estate investments.
[ 2013-12-06 04:42:52 ]
I just had another investor lose a great REI deal last week. For the sake of privacy, we'll call her Sheila. Sheila's mistake was one of many tiny deal-killing mistakes that even experienced i ...