Private Lenders: The Most Important Person in Your Real Estate Investment Business?

Introduction

Private lenders are the single most important persons in your real estate investment business. Why? Well, a couple of years ago, you may have been able to get relatively inexpensive loans from your local bank or saving & loan. But those days are gone as traditional lenders are tightening lending practices and, in some case, have gone out of business. 

As a real estate investor you need access to cash that is both affordable and readily available when a good deal presents itself. Instead of looking for money from banks, saving & loans or even hard money lenders who charge high rates of interest, huge fees and two month closings why not consider private lenders as a far better alternative.

Who Are Private Lenders?

Private lenders can come from all walks of life. They may not even know the first thing about real estate investing but are simple looking for better returns on their money than they are currently getting with bank CD’s or money markets.

Private lenders can be local business people, doctors, attorneys, accountants or even in some cases may be retirees with extra money to invest. Private lenders are looking for investment returns in the 9% to 15% range. Most bank CD’s or money markets are only paying 3% to 5% and private money gives them almost double their current returns. Additionally, private lenders want to be secured by a lien on local rental real estate properties. Most private lenders want to be able to actually see the property that is securing their investment and, in fact, will most likely drive by and see the property from time to time.

Private lending is the process of borrowing money from private lenders (not banks or financial institutions) at rates higher than those private lenders can normally achieve from banks or savings & loans from CD’s or money markets and secured by local rental real estate. 

Do Private Lenders Come in Different Forms

Private lenders generally come in two forms. First mortgage lenders will lend up to 90% to 95% of the purchase price and expect you to fund the balance or use another private lender to fund the balance. Or second mortgage lenders who will lend you the 20% to 30% down payment you need after you have arranged a bank loan for the first 70% to 80% of the purchase price.

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