Private money loans mostly refer to loans provided by non-institutional lenders. Such lenders mostly involve private investors or companies. If you are seeking a short-term loan to purchase a fix and flip or rehab the property, then you may want to consider turning to a private money lender.
Benefits of Private Money Loans
There are many benefits offered by private money loans. These include:
Faster Access to Funds: You can get private money loans much faster than from regular financial institutions. If you turn to a bank for a loan, you will most likely have to wait a minimum of 30 days to receive funding. In addition to the longer wait times, the required documentation and application process can be quite tedious. In contrast, you can get a loan from a private lender much quicker. Not only is the list of required documents required by a private lender minimal, but you will interact directly with the lender which streamlines the approval process. If you provide the requested documentation in a timely manner, a private lender can typically fund your loan in a week.
Get A Competitive Advantage: Private money loans can give you an incredible advantage when you are trying to buy a property in a competitive market. If there are multiple parties interested in a hot real estate investment deal, the early bird is likely to get the worm. Fast funding equals access to profitable properties, and a hard money lender is a great partner to have in these situations. If the private lender finds value in the property and you have enough equity in the deal, you can get funding lightning fast compared to a traditional bank.
Simplified Repayment Terms: You will have greater flexibility in structuring the repayments with a private money lender than with a financial institution. If you take out a loan with a large financial institution, the repayment terms are set out by the bank as per their defined policies. Though some adjustments may be made, most of the time you will have to accept the repayment structure set by the bank. On the other hand, you are likely able to work out a mutually agreeable repayment term with a private lender.
Avoid Unnecessary Charges: You can avoid paying unnecessary charges when you opt for private money loans. For example, many major lending institutions often have a prepayment penalty clause. This means that if you decide to repay the loan amount in full before the expiration of the loan, then you may be subject to a penalty fee. You are not likely to face this issue with private lenders. If you come by some extra money, say from the sale of another investment property, you can easily pay down your hard money loan with your private lender without facing fees.
If you are in the real estate investment industry and consider a private money loan to be in your best interest, the next step is to find a reputable lender. Check the track record of the private lenders in your area and do thorough research on their company and try to obtain some testimonials from previous borrowers.