The most frequent excuse people use for not getting involved in real estate investing, other than fear of failing, is lack of financing. The fact is it has never been easier, or more lucrative, to invest in real estate than right now. In times past, the options for private money loans were limited to conventional loans through banks or high interest loans through hard money lenders. However, the banks require a hefty down payment (20% for an investment property), a mountain of paperwork, and an underwriting process thats sure to kill your deal one way or another.
The other option has been hard money lenders, however the rates are usually exorbitant, which means the deals had to have a huge margin to make any sense. As we already know, lending is not nearly as accessible as it has been in the past, but the credit markets do show signs of improvement. Lenders that are willing to lend money today typically require significant equity from the borrower and outstanding credit. Moreover, it seems hard money lenders are charging exorbitant rates because they’re aware that borrowers have limited options.
While the current economic downturn has created issues with investors, it also offers outstanding investment opportunities for those who recognize this. This market has opened the doors for a new breed of loans called transactional funding, which is normally used to fund short sales, and private money, which is similar to hard money. Private money loans are preferable to most investors because the terms are generous and the investor has more control over the deal.
Private money can be raised in many ways – brokers may pool the funds, or wealthy individuals may provide your funds. The erratic moves in the stock market and global capital markets has made many investors running for more secure places to put their money.
Keep in mind the perspective the private money lenders may have. Where do you believe he would prefer to place his money…in the stock market, which has been incredibly volatile, or a local property investment that would have substantial equity? No need to guess which option makes more sense. That’s primarily why investors are successful in getting private money to fund their deals.
While banks will eventually open their doors and begin lending again, private money lenders offer a new breed of lending that’s probably going to stay around.
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