Private Money Loans

A major hurdle nearly every real estate investor has run into is securing funding to get started on a project. With a mountain of government regulations and guidelines, most traditional lenders such as banks and financial companies just aren’t set up to handle most real estate investments. So how can you get the financing you need to get your next (or first) real estate investment underway? It’s time to look into private money loans.

What exactly is a private money loan?
A private money loan — also known as a hard money loan — is an asset-based loan. This means that they can use the investment property itself as collateral. And because a private lender is much more interested in a reputation for repayment than they are in a personal credit score. They operate quite differently from traditional loans, and they are designed to help real estate investors get moving on properties quickly.

How do private money loans work?
For starters, private money loans are very short loans — usually between six and 24 months. This is ideal for a real estate investor who is looking to get in, get the job done, and get out. They also close very quickly, often within just days, helping investors win potential bidding wars. While their interest rates are higher than traditional loans, many investors see this as a fair trade for the lower required capital upfront.

There are Several Types of Private Money Loans
Because real estate investment is a broad area, there are several different types of private money loans to suit the various needs of investors. Let’s check out some of the bigger ones:
• Fix and Flip Loans:Fix and flip loans — also known as rehab loans — are designed for real estate investors who have identified a property with a low purchase price that can be renovated and sold for a much higher price. These loans come with a quick approval and closing, and minimal upfront capital is required.
• Construction Loans:Construction loans are used to finance new construction projects in the residential and commercial sectors. They typically run for as little as six months and upwards of two years, and they often require interest-only payments.
• Acquisition Loans:Acquisition loans are similar to fix and flip loans in that they can be obtained with speed and are intended to finance the purchase of an investment property. However, where a fix and flip loan takes renovation costs into consideration, an acquisition loan does not.
• Bridge Loans:Bridge loans are designed to help investors get from one investment to the next. They’re perfect for anyone who has identified a property they’d like to purchase, but their money is tied up in another property that is awaiting sale.

Are Private Money Loans Right For You?
If you are in the real estate investment business but don’t have access to a lot of capital, then you should definitely consider a private money loan from a reputable lender. These loans can help you get the investment property you’ve been looking at before another investor gets it from underneath you. Each has its own benefits, so be sure to talk to your private lender to understand them and determine what makes the most sense for your particular project.