Investing in real estate is a great way to diversify your financial portfolio as it offers great long-term investments as well as options to flip houses for short term profit. Getting started, however, can be overwhelming. There are several questions you should consider. These include: where do you get money to invest in this property? What kind of loan should you take out, a traditional mortgage loan, or a private money loan? What if you don’t qualify? There are several benefits that are drawing people to private lenders, but what does that actually look like?
While this option might not be ideal in every situation, using a private real estate lender offers benefits that banks do not, especially if you are looking to buy and sell quickly. Here are four reasons that more and more real estate investors are choosing to use private money.
It’s easy to qualify.
If you are concerned that a low credit score will disqualify you from a loan, private money may be a great option for you. While banks require good credit scores to acquire a loan, low FICO scores will not disqualify you from a loan with most private lenders. Your income also matters less, as private lenders take the potential income that you will make from a property into account. They are more interested in the financial investment and are willing to overlook low credit and income if the investment seems promising. For this reason, they require less paperwork upfront and you don’t need to waste hours at a bank proving that you are a good candidate for a loan.
Approvals are quick.
Private lenders move quickly, which is incredibly important in the real estate market. Applying for loans through banks can be a long, tedious process. It can take several weeks to find out if you’ve been approved and longer to actually receive funding. However, private money lenders often allow you to prequalify online within minutes and the turnaround for receiving money can be as little as a week or two. This is helpful if you are looking to invest quickly, especially if you are trying to buy property in order to flip it. There is no time to waste in this market and using private money allows you to make decisions rapidly.
They offer flexibility.
Private money lenders are typically more flexible and willing to work with you than are banks. The goal of both parties is to make a good investment, and private lenders are not constrained within the same payment structures and terms that banks are. Private lenders can customize loans to suit your needs, rather than treat each client uniformly. This is especially important because it allows you to operate on your own timeline and private lenders are more likely to work with you if an issue arises.
Interest-only payments allow you to pay only the interest rates on your loan each month, rather than pay off the capital you borrowed. This allows you to pay lower monthly rates, though you still owe the same amount as you borrowed at the end. This type of payment is particularly helpful in short-term property flips, as you will have low payments during the flipping process and can easily pay back the borrowed capital once you have sold the property for a profit.
Using private money offers several benefits and is becoming an attractive alternative to traditional loans. As a real estate investor, it is important that you know your options in order to make the best choice for you. If you still have questions about whether private money is for you, please contact us and we will be happy to discuss your options.