In fact, a lot of people can potentially become very successful investors in real estate, but very few people actually try. Most do not try to get rich this way because they think they can’t; they don’t have the money to invest in properties and they believe they cannot get financing by going to a bank for a loan. However, there is a better and easier way for you to finance your properties if you want to become a real estate investor. You do this through what are called private money lenders.

Private Money Lenders Explained

A private money loan is one that is financed through an individual who has spare money to lend and who wants to make a small profit off of that money. This is the most flexible financing option for real estate investors because you get to borrow money from a regular individual, just like you and me, instead of a bank or other lending institution – which can be very impersonal and formal. Banks and lending institutions have rules and regulations that they must follow when deciding who to lend money to, but private money lenders do not.

Finance Your Properties Through a Private Money Lender: a Better Way

Banks and other traditional lending institutions are bound by strict rules and regulations. They have to follow these regulations exactly. However, private money lenders can choose who they want to lend to, regardless of the investors’ credit rating, financial statements, and other financial benchmarks.

The Benefits of a Private Money Loan

As a real estate investor, you can approach a private money lender and make your case with them individually. You can explain to the private money lender why you are someone they should invest in, and after you’ve done so, they can make their own decisions. However, there’s more to it than that and the benefits go even further. If the private money lender is interested in what you have to offer, you both can sit down and work out financing and repayment arrangements that are of benefit to both of you. You can both state what you want out of the arrangement and agree on a payment schedule and interest rate that satisfies both of you.

What’s more, since a private money loan is a short-term loan, the lender may even be willing to wait until after you flip the property to receive any repayment at all. This allows you to focus on fixing and selling the property, without the anxiety that can be associated with payments on a property that hasn’t brought in any money.

Drawbacks to Traditional Hard Money Loans

As opposed to private money loans that benefit both lender and borrower, bank loans are often one-sided. They get to hold you to extremely high standards and, if you are lucky enough to receive the privilege of their financing, they also get to benefit from a high interest rate and other fees. There is also no room for payment flexibility or special arrangements. Therefore, even if you have a spotless credit history and have a high probability of receiving financing from a hard money lender, there are still many advantages to seeking out a private money loan instead.

Private Money Loan Benefits Recap

Private Lender can lend freely and does not have to abide by tough rules and restrictions. Allows real estate investors with problematic personal credit histories to secure financing for their properties.

Opens the lines of communication between lender and borrower. Borrower can negotiate an interest rate or flat fee that is almost guaranteed to save money over a traditional loan.

Borrower can make custom payment arrangements that will be beneficial to them and the lender. Payments may even be suspended until the property is sold.

There is no formal application process required. Instead, borrowers can negotiate directly with private money lenders and convince them to work with them in the purchase of the property or properties in question.

Private Lender will see borrower as a real person with a real goal, instead of just a paper application that must pass ridged guidelines.

All of these benefits make private money loans the most flexible funding option for real estate investors. A private money loan allows you a variety of options and opens the door for many real estate investors who would otherwise be turned down by a traditional lender.