Investment Property Loan: Top 10 Reasons Why You Definitely Need A Private Money Loan
With today’s very tough credit environment, it is very difficult for most real estate investors to find a good consistent source of investment property loan money for real estate businesses. This is where private loans come in and offer many advantages over these two traditional sources of money. If you want to be a successful real estate investor, you may need to consider private loans.
Banks are slow: Some offers do not work with traditional bank financing or hard money loans. If you have to close quickly to get a great deal, banks and hard money lenders will require lengthy reviews and a lot of paperwork. The seller may be desperate and need your money right away, but can’t close quickly while you wait for the bank to approve your loan. The seller may accept someone else’s offer even if it is at a lower price just to get their money quickly.
Cash flow: You won’t survive the cash flow game if you use your own money. Between acquisition costs, marketing costs, maintenance costs, repairs, and selling expenses, you may run out of personal funds after your first trade. Having an investment property loan lined up increases your ability to make low cost cash deals.
Easy money: Many sellers will need cash now to solve their personal problems and will need a “full offer” fast. Without access to quick cash, you can’t make an offer and you’ll lose another profitable deal to your competitors.
Exit Strategies: With access to private money, you will have numerous exit strategies available to you as you buy and hold or buy and switch quickly. Private lenders may want you to hold on to make your money work for the long term, or they may want you to switch to get your money back quickly at a faster, more profitable return.
bargaining power: Having a group of private lenders gives you the power to go “all in cash” and use that power to get lower prices or better terms. Your competitors will not have that power if they only use banks. You can also negotiate flexible terms with your investment property loan. Private lenders are more flexible with payment terms, so it is beneficial for both parties.
Low cost: Private loans are usually much cheaper money than hard money lenders. Hard money lenders generally charge 20-25% total vs. private money 10-15%.
Do not split the winnings: You don’t have to share or split the profits with partners or hard money lenders. Paying 10-15% interest on borrowed funds is much cheaper than splitting 50% of your earnings.
No loan limits: Fannie and Freddie have limits on the number of loans you can get to buy investment property. The limits were recently increased from 4 to 10, but that’s still a limit you don’t have with private lenders.
NO personal guarantee: Banks and hard money lenders ALWAYS require you to personally guarantee each and every loan. Private lenders will not require you to personally guarantee and seek the property as your collateral
You need a credit score: Banks and hard money lenders require minimum credit scores. The minimum scores are now between 650 and 700. If you have this kind of score, you are out of luck. Private lenders will never look at your credit score as they have based their investment decision on property and kidney rates.
Therefore, the work to obtain an investment property loan is the fuel that will ignite your real estate investment business.