To
say that the US mortgage market has
changed in the last year is a huge understatement! We have
seen the end of easy money financing and it will be some time before we
see sub-prime
loans, no-doc loans or hard money lending in many areas. Even traditional
mortgage lending will
require much higher credit standards and much larger down payments for
real
estate investors.
So
how are you going to fund your
real estate deals in this new environment?
Few
individuals have enough of
their own cash to purchase real estate investments, and those who do,
generally
know better than to use their own cash in their real estate investing
business. If you
are a serious real estate investor you need cash to buy houses.
It
is a common story for new real
estate investors to start out with lots of cash and little experience,
only to
lose all their cash in the learning process and have to learn how to do
things
the right way the second time around.
Even
if you have a flush bank
account or a home equity line of credit you’ll eventually run
out of money and
need a consistent and dependable source of new money to buy real estate
investments.
So how do you get this cash!
You
can go to a bank and try qualify
for a loan and then wait to be approved.
If
approved, you will need to put
up 20% to 30% down payment for each and every deal and pay all the
bank’s
closing cost fees. How
long will your
cash last doing that!
Or
you can go to a hard money
lender but they will only lend you 65% loan-to-value (LTV) and you must
fund
the balance with your personal funds.
Not to mention, hard money lenders charge 5 to 10
points as an upfront
fee. Ouch!
So what is the answer?
The answer is using private lenders to fund
your real estate deals. Private
lending is
a consistent source of funds to purchase real estate deals that you can
go back
to again and again and again. In
fact,
the more you use the more that will become available as you develop
relationships
with more private lenders.
What is private lending and who are private
lenders?
The
definition of a private lender
is an individual that you can negotiate directly with on a personal
basis to
borrow money for real estate investments. The
money can be used to purchase rental real
estate investments or to supplement funds borrowed from a bank to cover
down
payments.
Private
lenders come from all walks
of life and may not know the first thing about the real estate business
but have
extra cash or assets that they can invest. These
individuals are generally middle class
people, who have some extra funds to lend.
They can be retired business people, corporate
executives, professionals
such as doctors, lawyers, or business owners or even blue collar
workers.
Private
lenders are looking for
returns substantially above the 3% to 5% they get at the bank with
CD’s or
money markets. Most private lenders are looking for investment
returns in the 9% to
15% range and secured by local rental real estate.
Private
lenders generally come in
two forms. First mortgage lenders who will lend 90%
to 95% of the purchase price
or 70% of the after repaired value (ARV) 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.
So
the concept of "private
lending" can be defined as the process of borrowing real estate
investment
funds from private individuals at rates higher than these lenders can
normally
achieve using conventional investing institutions like banks and
conventional
investment vehicles like stocks, bonds, CDs, or money markets and
secured by
local rental real estate.
Download
your FREE eBook titled "Discover the
Secrets of How to Fund Your Real Estate Deals with Private Lenders" and learn how to fund your real estate deals with Private lenders!
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