Private lenders are still incredibly vital to real estate investors, and here’s why…
While some major banks and old-school finance houses may appear to be becoming more aggressive in marketing for loans, private lenders are still a crucial part of the capital equation. In fact, they may be far more important today than ever. Private lending is serving individual real estate investors and small businesses well. At the same time it is serving these private lenders with a valuable and profitable service, while taking a bite out of the control banks have over us. Here is why they are still so vital to use.
Access to Capital
Despite interest rates going up, and banks dodging any meaningful penalties for a series of major fraud issues, they just aren’t lending like they once did. Conventional credit remains very tight. Private lenders and the alternative conduits they are funneling money through are keeping money flowing in the economy, and that is essential.
Beyond basic access to capital these money lenders also provide access to funding for those who just don’t fit the tight bank underwriting mold. This is especially important for those with credit issues, or who have hit lending or loan limits with traditional mortgage lenders.
Private money it typically far faster when it comes to funding deals. Unfortunately, there are now a large number of ‘fake’ private money lenders out there online who are positioning themselves as direct private lenders when they are not. They may have sleek modern websites, but may in reality just be shopping your application around to various other portals, and their back-end investors to actually get you funded. That can be as grueling and frustrating as the main street bank experience. True private money lenders are usually very fast. They can approve loans the same day, and fund them just as quick. If you have an existing relationship with them they may have a lone of credit or credit facility you can tap into within hours. This can make all the difference in being competitive in the market, and landing the best property deals.
The streamlined process of working with private lenders also offers incredible efficiency. You may not have to provide income information, asset details, wait for appraisals, or even have your credit pulled. A simple one page deal sheet can be all that is needed to get financed. Compare that with often waiting months for traditional lenders to close, and dealing with endless loops requiring more paperwork.
One of the biggest roadblocks for real estate investors is often having the confidence to make offers and knowing the funding is going to come through. If you are just gambling on a bank coming through, then your entire deposit could be at risk, along with any time and money spent in due diligence, not to mention missing other deal opportunities. Having sold financing lined up also gives the seller and any real estate agents or attorneys involved confidence in you as a buyer. This is vital for getting offers accepted, and can make a big difference in the terms they will accept, and if they will give your lower offer favor over a higher one from a less qualified buyer.
The above means protecting your reputation in the real estate business. Your reputation means everything in access to deals, finding partners, finding buyers who are willing to work with you, and even dealing with contractors and the city. Burn too many players and contacts with loans that don’t happen, or closings that drag on too long and everyone will know your name, and not for the right things.
Open the Doors to Doing More Deals
Private money lenders have become essential for investors to engage in many of the most profitable opportunities out there today. Most traditional sources won’t fund small loan amounts, finance houses that are in bad condition, and may still be (unofficially) refusing to loan in certain areas. They only way to fund these deals and turn them into cash and to improve these neighborhoods is with cash or private capital.