What if you could fund all your real estate deals without ever applying to a bank? That is the way prosperous investors roll. They buy, sell and wholesale properties almost exclusively with cash from private loans.
Most aspiring investors don’t realize how accessible and common private loans really are. You don’t have to be a tycoon to attract cash investors or private lenders because anyone can be a bank—from a clerk at a corner store to a CEO at a large firm.
Private funding for flipping properties is available everywhere—especially since lenders can enjoy higher returns in real estate than with most other investments. Their loans are usually shorter term than a bank’s and range anywhere from a few thousand dollars to several million. Meanwhile, lenders risk very little investing with you since they hold the property as collateral and have the safety net of the exit strategies you provide.
Concentrate on structuring win-win real estate deals and over time you will have more lenders seeking you out than you will ever need.
Benefits Both Ways
The benefits of private vs. conventional funding are numerous and the possibilities limited only by your imagination. Without the financial constraints imposed by banks, you and your private lenders are freer to buy and flip more properties with fast, creative financing.
More Flexible Terms
Getting private funding is a lot easier than going to the bank, especially when you already have a few connections with lenders. A private investor cares more about the deal you bring to the table than your credit history or a down payment.
Private loans close quickly, often within days and even hours. Negotiating is more of a people process—with fewer delays and less red tape.
With private funding there are no absolute rules, as long as you are compliant with the SEC (U.S. Securities and Exchange Commission).
You are in Control of the Deal
When the bank controls your loan, it also controls the types of deals you can do. It dictates fees, terms and interest rates, while you spend weeks and even months jumping through hoops just to get one loan. But with a private lender, you are in the position to close loans quickly for unlimited deals with fewer conditions.
Lower Borrowing Costs with Higher Benefits
Interest rates for private funding vary widely, but average around 10-15%—higher than a conventional bank loan yet lower than a hard money loan. But the tradeoff of paying relatively high interest is worth it for savvy real estate investors.
It might look like you are paying too much for private money, but consider the short and long term benefits. For one thing, you gain time and energy otherwise lost to chasing red tape. You have the freedom to follow through on opportunities when they are ripe, rather than losing out to delayed loan processing.
At the same time, with private money you need less cash, and often no cash, upfront to buy a property. You can receive as much as 100% of private funding in time for closing a deal. The beauty is private investors are more likely to buy into your vision and likewise lend more in proportion to projected after repair values of properties—which lets you build equity and profits worth tens of thousands of dollars into the resale.
You can structure payments to private lenders in a number of ways. Some lenders want a flat percentage of a deal or they want monthly payments until you flip a property in full. Or a patient and enterprising lender might agree to defer payments until after you sell—letting interest compound for a higher payoff.
Private Cash Comes to You
Real estate investors who seek out private funding soon find they have access to a pipeline of cash. Instead of chasing money through the bank system, you can contact your list of cash investors for ready funding.
Word spreads in the industry. The more you put together win-win deals—with low risk and high returns—the more lenders will come looking for you.
QUICK TIPS
- Private funding is the secret of many top real estate investors.
- Most real estate investors choose conventional funding over private funding because they don’t realize their options.
- Anyone can be a bank and lend money.
- The speed of private funding means the power of cash to close more deals.
- Private funding is not constrained by the rules of conventional lending, which means more opportunities for you, the investor.
- A private investor cares far less about your credit and down payment than the potential profit of a deal.
- There are no absolute rules with private lending—as long as you are compliant with the SEC (U.S. Securities and Exchange Commission).
- The relatively higher interest rates you pay for private funding are balanced by the many benefits.
- With private money you need less cash, and often no cash, upfront to buy a property.
- Private investors are flexible with creative financing from start to finish—from terms to payoff.
- Always plan win-win deals with private investors and over time they will come looking for you.
