Private Money: Good Luck Without It


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The most common excuse many people make for not investing in real estate, besides fear of taking action, is lack of proper funding. The fact is it has never been easier, or more lucrative, to invest in real estate than right now. In the past the only options available for private money loans were conventional financing through banks or high interest loans through hard money lenders. However, conventional lenders often require a large down payment of 20%, if not more, a load of paperwork, and an underwriting process that has derailed a fair number of transactions.

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 new environment has led to the creation of transactional funding, which is frequently used to fund short sales, and private money loans, which is typically provided by individuals. Private money is the most advantageous option for many investors because the investor controls 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. Consider where the investor would rather invest his money…in the stock market which has lost almost as much as during the great depression, or in a local property investment that will be secured by the equity in the home? Seem like a no brainer, doesn’t it? That’s exactly why many real estate investors are having such success these days getting private money sources.

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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