Investing in real estate can be challenging. It's a harsh industry, especially when it comes to securing capital. Connecting private lenders with borrowers may be a solution for real estate investors.
Private lenders aren't for everyone. But, in certain circumstances, they may be right for you. Chris Naugle, Founder and Owner of The Private Money Club, explains in a Royal Investing Virtual Summit how his company and other private money lenders connect with borrowers and provide them the capital and solutions they need.
Private money loans, more commonly known as private money, are loans offered by a private organization or even a wealthy individual to another person or company. These individuals and organizations providing such financial help are called private money lenders.
Private lenders allow you to secure funds outside traditional banking or lending qualifications. However, due to relaxed regulations, these loans can be risky for both parties, so due diligence is required.
Since a private lender is anyone who has money to give you that isn't a bank, a private lender can be any of the following:
If you're looking to buy a property, attend to much-needed renovations, or prep a home for reselling- private lenders might be the perfect fit.
Guaranteeing a solid return on investment is of the utmost importance - and that means mitigating any risk involved. Before providing capital to potential borrowers, they analyze various factors such as:
Why would you choose a private lender over a bank?
Banks and credit unions typically don't lend to rehab projects or other investments for flippers - the property must be in good standing to receive conventional financing. That might kill a lot of deals for you. Private lenders are usually more than willing to fund these activities.
In most cases, private lenders have lower borrower requirements than a bank. For instance, you may enjoy the following:
There are also some drawbacks when you work with a private lender that you should know.
With a traditional lender, you can secure a 30-year mortgage. Private lenders are flexible but usually want their money back sooner than 30 years.
Another issue is that you may have to pay a higher interest rate than what you'd find at a bank.
Before taking out a loan, it is essential to vet the source of funds and ensure that those funds are legitimate. Typically, these lenders comprise several individual investors who expect a return on their investment; thus, verifying that your loan won't abruptly collapse is critical for borrowers.
Understanding the kind of private lender you seek is integral to beginning your search. Finding the right person may be time-consuming. But don't worry - there are a few approaches out there that can help you connect with a private lender.
Establishing connections through networking is a reliable method for locating private lenders. Use it to find accredited investors, individuals, and financial institutions who can provide your funds.
Look for places you can grow your network:
If you're open to seeking out private individuals, your search options become almost infinite.
If you're searching for private lenders near you, it's as easy as Googling them. Additionally, dedicated sites such as Private Lender Link can help to locate the right lender for your needs quickly.
Keep in mind, however, that lenders obtained through these searches will most likely receive more offers than lenders found organically.
Private lending may be a solid strategy if you're interested in earning passive income. As opposed to investing directly in real estate or business ventures, which require purchasing property and managing the day-to-day operations of a company, private lending allows you to reap the rewards without any of these hassles.
You'll need the required capital to become the bank for borrowers to turn active income into passive income.
Connecting private lenders with buyers is a people business. As a real estate investor, you must massage your network to find a private lender. You'll see distinct advantages of working with a private money lender.
Some of those include:
There are drawbacks, so you must do due diligence when looking for a private lender.
Do you want to know more about connecting with private lenders or learn how you can become a private lender? Sign up for our FREE Royal Investing Group Mentoring, where we cover all types of real estate investing topics.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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