There are a lot of people out there who could potentially become very successful real estate investors, but most people don’t even try. Why? Because they themselves don’t have the money to invest in property and they think it would be too difficult to try to secure financing through traditional venues, such as a bank or other type of “hard money” lender. However, what they probably don’t know is that there is a better and easier way for real estate investors to finance properties and thus have success. That is, through private money lenders.

Private Money Lenders Explained

What is a private money lender? It’s a loan that is financed through an individual instead of an institution. That individual has extra money he or she wants to lend and make a profit with. This is an incredibly flexible financing strategy, because you can borrow from someone who is a regular individual just like yourself, instead of having to jump through the hoops set forth by banks and other lending institutions, which have to follow strict rules and regulations when they decide whether or not to lend someone money. In other words, private money lenders don not have to follow these rules.

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

Because private money lenders don’t have to follow the same strict rules and regulations imposed by the government and board of directors in the same way banks and other traditional lending institutions do, they can choose whom they invest with. That means they may be very willing to lend you money if they see you as someone they want to invest with, regardless of a substandard credit rating or other financial missteps.

The Benefits of a Private Money Loan

As a real estate investor, you can approach a private money lender and explain as to why it’s a good idea to invest in you. This will let the lender come to his own conclusions, but there are further benefits, too. If the private money lender is interested in working with you, both of you can work out payment and financing arrangements that are of benefit to both of you. Both you and the private money lender can state what you expect from the arrangement, agree on an interest rate and payment schedule, and basically hash out any details so the both of you are happy with the end result.

What’s more, since a private money loan is a short-term loan, the lender may even be willing to wait until after you flip the property to receive any repayment at all. This allows you to focus on fixing and selling the property, without the anxiety that can be associated with payments on a property that hasn’t brought in any money.

Drawbacks to Traditional Hard Money Loans

As opposed to private money loans that benefit both lender and borrower, bank loans are often one-sided. They get to hold you to extremely high standards and, if you are lucky enough to receive the privilege of their financing, they also get to benefit from a high interest rate and other fees. There is also no room for payment flexibility or special arrangements. Therefore, even if you have a spotless credit history and have a high probability of receiving financing from a hard money lender, there are still many advantages to seeking out a private money loan instead.

Private Money Loan Benefits Recap

If you work with a private money lender, the private lender can lend money to you as he sees fit and does not have to abide by the guidelines traditional lenders do. Because of this, if you have a less than spotless personal credit history, you may still be able to secure financing for your properties.

Private lending can mean much more open communication between the borrower and private money lender. The borrower and lender can negotiate an interest rate or flat fee that will almost always save the borrower money over that of a traditional loan.

Borrower can make custom payment arrangements that will be beneficial to them and the lender. Payments may even be suspended until the property is sold.

In general, you don’t need any financial application to borrow money from a private money lender. Instead, you can talk directly with the lender to try and convince him to take a chance on you and on the property in question.

Unlike institutional bank loans, working with a private money lender will help him see you as an individual with established goals instead of just as a paper application that has to pass specific guidelines.

All of the above benefits mean that private money loans are often the most flexible and beneficial funding options for those who wish to invest in real estate. As a real estate investor, working with a private money lender gives you a number of options to work with and also opens the door to the opportunity of investing in real estate when it might otherwise not be available to you in the event you would have to go through a traditional lender to obtain your financing.