Private money lenders

Foreclosed property investing is alluring to many. Real estate investors are eager to cash in on the buy/fix/sell and buy/fix/rent strategy. However, the catch here is the finance. Where can you get the money to invest?

There are three options for financing foreclosed property investment. Real estate investment loans could be through– seller financing, conventional financing and hard money loans. Conventional financiers like bankers and lenders are already burdened with foreclosed properties and unpaid loans. They may not be keen on providing a loan on fore closed property investment. What’s more, their loan processing period extends from 30-45 days, which may not be feasible for investors.

On the other hand, private money loans otherwise known as hard money loans or bridge money are easily available. The good news is that these private money lenders process the loan within a week; and sometimes even in 48 hours if the need arises. Yes, their interest rates are high, but easy and timely availability of finance makes them popular with investors.

Who are private money lenders?

As the name depicts, private money lenders are private individuals, who have the booty to finance a deal. They do not belong to any lending institution.

Salient features of private money lenders

• As real estate investment loans come from private individuals, who have a great deal of money to lend, their top priority is to protect their investment capital. Thus, you can expect specific and strict terms and conditions
• The terms of hard money loans may vary from lender to lender, but the common factor among them is that they lend only a part of the after repair value of the foreclosed property. In this way, their money will still be safe in the event of the investor’s failure to repay the loan.
• Usually, the interest rates of bridge money are higher than the regular rate of interest. Normally, the rate varies from 10-12%. The interest rates may change depending on the credit worthiness of the investor.
• The loan period is mostly short, ranging from a period of six months to a year.
• Investors can expect to acquire a loan amount of almost 65- 70% of the after repair value of the property. For instance: If the after repair value of a property is $100,000, you can expect to acquire a loan of almost $70,000.

Foreclosed properties are available at deeply discounted prices, ranging from 10-50% lesser than the prevailing market value. Let’s say the property is available for a price of $55,000. Even if the repairs cost works out to $15,000, your loan can cover the purchase value and repairs cost of your investment.

• Typically, private money lenders charge anywhere from 2-10 points as charges for using their money. Therefore, 2 points on a loan of $70,000 would work out to only $3,500.

Timely availability of finance can make or break a deal. For these properties are mostly sold at a "cash on sale" basis. Investors with ready finance have a better chance of acquiring the property. Private money lenders are therefore a boon for real estate investors.

The Author, Piter W Sherman has vast knowledge in Finance and loan. Here he presents an article on Private money lenders. He also writes in more similar topics like private money loans, Bridge Loan Texas.