Private Money Loans

Private money loans:

How many of you have heard the phrase, “it takes money to make money?” This is a true statement if you want to make it in real estate investing.

 

Private money

 

People often make the assumption, however, that you must own the money it takes to make said money. You don’t need to own it- you just need someone to let you use their money so you can do the deal. These people are called lenders and you should really get to know some. In my world, lenders come in two forms: banks and people.

 

With bank loans, you fill out an application as thick as a text book with all kinds of personal information. You put 20 percent down, pay for an appraisal, pay for an inspection and hope the bank doesn’t decline you.

 

The 45-day closing that accompanies a bank loan doesn’t work when you have a smoking hot deal.

 

With a deal like that, you need to act –FAST!

 

Wouldn’t it be better to pick up the phone and know your deal is funded? That’s where private money comes in. It’s fast and efficient. That’s why for our business, dealing with private lenders has been the method of choice.

 

pilot-gopro-of-phone

For instance, we just had deal come through where we had less than 24 hours to close. Our lender on this one was a pilot for a big airline company. He was literally prepping a jet to fly to Germany when we called. With that one phone call, we were funded and able to close the next day. I don’t think you can do that with a bank.

 

So what’s a private money loan?

 

A private money loan is a long-term loan made from an individual to an investor, namely a landlord.

 

Private lenders come in all shapes and sizes. Some have inherited money they’d like to invest. Others work out of their 401(k)s or self-directed IRAs. Still others have money in vehicles like money market accounts, CDs, or savings accounts.

 

These individuals long for a better return than the 1.5 percent banks are offering today. When they lend, they understand their investments are secured by a first mortgage on real property. This means that if the landlord (borrower) should stop paying, the lender will get a house back, which can be sold to recoup his or her money. You don’t get security like that with any other investment.

 

Speaking of that, it’s important for the landlord to make their lenders feel secure. Private lenders like to see what kinds of deals the landlord has done. They also like to hear from others you’ve borrowed from in the past. These references will speak volumes on your behalf. Remember, you’re dealing with people. People need to feel comfortable with whom they’re doing business.  Find out any other information the lender needs in order to feel comfortable and give it to them. This will ensure the deal goes through.

 

With private money loans, interest rates, term and even payment schedules are all negotiable. For instance, suppose you buy a rental that needs a big rehab. What if you negotiated a larger down payment for a full year of no payments?

 

Or maybe you secure interest-only payments for the first two years to keep your payments low. This allows you to recoup your rehab cost from the cash flow.

 

Could you imagine a situation where a lender, currently in a higher tax bracket, may find it beneficial to defer getting payments until they’re in a lower bracket?Strategic_Partnership

 

 

Each deal can be customized to fit the needs of both parties. That’s powerful. No longer is the borrower servant to the lender. The two are now in a mutually-beneficial partnership. This makes more deals possible and will make each of you more money.

 

Joe and Ashley English invest in real estate in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com

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