How to Get a Construction Loan for Your Investment Property

Because there are so many financing options available to today’s homebuyers and real estate investors, it can be hard to make the right choice. When it comes to upgrading your property or building a new one, one option worth considering is a construction loan for investment property

Renovation or construction loans for investment properties can be used for several projects but almost always allow the user to customize their space or property. Anyone interested in new construction or a big renovation should investigate this as a viable financing option. Keep reading to learn if these loans are right for you, and learn how you can qualify.

What Are Construction Loans?

Construction loans are short-term financing options for new real estate or renovation projects. They are used to pay for the costs of building a new house or upgrading an existing property. Construction loans are only applicable for the time it takes to complete the project, and users only borrow what they need. These loans are distributed directly to the contractor (instead of the borrower) in segments called “draws.” Draws are marked as certain elements of the project are completed, such as the foundation being poured, or the frame being built.

The main appeal of construction loans is that they enable home buyers or investors to build a new property; though, the freedom to customize a property does come at a cost. For example, construction loans are known to have higher than average interest rates. The structure is typically set up to protect lenders who trust that a project will be completed correctly and that it will be worth a certain amount when done. However, homeowners should not rule this option out because there are several perks to this form of financing.

Construction Loan FAQs

Construction loans may seem self-explanatory, but investors who are inexperienced with using this type of loan may have questions about what they are and how they can use them. Look at some of the most frequently asked questions about construction loans, before you decide if obtaining one, would be right for your next investment project.

What Can A Construction Loan Be Used For?

A construction loan can be used for several projects, depending on your hard money lenders’ requirements and terms of the agreement. Here are a few of the ways to utilize an investment property construction loan:

·         Purchasing raw land

·         Pouring foundation

·         Building an addition to a property

·         Framing and finishing a house

·         Building sheds or other structures

·         Adding a garage

What’s The Difference Between A Construction Loan And A Home Loan?

A construction loan and a home loan are different in terms of what they can be used for, and as such, the approval requirements will be slightly different for each. A construction loan is used to build new structures or renovate existing ones, while a home loan is just a traditional mortgage. Both types of financing will require a credit check and other financial information, but a construction loan will also require the project plans to be approved before the loan is issued.

Additionally, construction loans can only be used for the duration of the project. On the other hand, home loans are issued for a set period until they are paid off. Borrowers who rely on construction loans will typically refinance their property after the project is completed and enter a more traditional loan. To do so, homeowners will go through a property inspection and appraisal.

What’s The Difference Between A Construction Loan And A Renovation Loan?

The difference between construction loans and renovation loans lies in the type of project. Construction loans are used for new properties with definitive project plans. Those who use construction loans will also typically transition into a regular mortgage at the end of the construction project. In contrast, renovation loans for investors are used to purchase fixer-uppers or to renovate existing properties. These loans can be used for cosmetic and structural fixes, like insulating a house or upgrading a kitchen.

Can You Get a Construction Loan For An Investment Property?

Yes. You can get a construction loan for an investment property as long as your project plans and finances meet designated hard money lender requirements. Unlike some home loans, there is no process stating that a construction loan must be applied to a primary residence. Construction loans can be a great option for financing an investment property for many reasons. Most notably, real estate investors likely have experience working with contractors and supervising renovation projects already. Therefore, they may be well suited to oversee the construction of a new property.

There are also renovation loans for an investment property obtained by following a similar approval process. Investors interested in a renovation construction loan will find that the loan is distributed based on the after-repair value of the property in question. This is where your investor tool kit will come in handy. Rely on a good rental property calculator and contractor when determining whether or not a renovation loan is the right move for a specific project.

How Can I Qualify For A Construction Loan?

To qualify for a construction loan, borrowers must meet several financial requirements in addition to having their project plans approved. To begin, Hard Money Lenders will typically review your debt-to-income ratio and credit. While the specific requirements vary based on your lender, many ask for a credit score of 650 or more. Borrowers must also have a down payment when setting up a construction loan, which should usually be between 20 and 30 percent. Make sure you shop around when searching for a  private hard money lender; there are numerous options available for obtaining a construction loan, and each will come with different requirements.

To get the final approval for a construction or renovation loan, you must also submit the project’s construction plans. Hard Money Lender will want to see detailed plans for the property and a team of qualified builders attached to the project. It is important to know that while you do need finished plans for the final loan approval, you can get preapproved for a construction loan before buying a property.

Best Type Of Loan For Investment Properties

Three construction loan types are best for investment properties: fix and flip loans, purchase and rehab loans, and construction/purchase and build loans. Typically, investment construction loans are reimbursement loans. In this case, the lender will pay for each stage of construction as it is completed and signed off by inspectors. Let us take a look at the best types of loans for constructing investment properties:

·         Fix & Flip Loans: These loans are ideal for the opportunist who has experience in buying, fixing, and reselling properties within a short period. You will find that most conventional hard money lender and banks will have no problem financing these projects if you comply with common sense hard money underwriting guidelines. What will matter the most for this loan is your experience in effectively flipping properties for-profit and the viability of the project in question.

·         Purchase & Rehab Loans: These loans are best for purchasing old or outdated properties and either demolishing them to construct a new one or completely remodeling it to fit today’s standards. Again, the underwriting will be the most important thing to get this project started.

·         Construction Loans/Purchase & Build Loans: These types of loans are available in the purchase of a lot or for construction on an existing lot you own. Construction loans and purchase and build loans are specifically for non-owner-occupied properties with the intent of retail or future rental income.

Summary

The idea of customizing a property from start to finish may seem impossible, both for homeowners and investors. However, this is not the case. With financing options like a construction loan for investment properties, building a new property does not have to be a distant dream. While there are approval requirements for this form of financing, it can open new doors to anyone interested in purchasing raw land or fixer-uppers. Consider a construction or renovation loan from a Private Hard Money Lender when you plan a project; it might lead to amazing results.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

 

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.  

How To Grow Your Real Estate Business Using Private Money

 Have you ever wondered how to grow your real estate business in the most efficient way possible? Are you confident you have considered every avenue to do so? At the very least, there are countless ways to expand your own company, but I digress. Learning how to grow your real estate business may be easier than you think. Better yet, doing so may have less to do with what you know, and more to do with who you know.

Real estate is a people business; it always has been and always will be. As such, you could argue that the relationships you develop over the course of your career are far and away from the most valuable assets you must learn how to grow your real estate business. Everyone forms the contractors you work with to the lawyers that help you draft critical documents has their place, and it is probably a valuable one at that. It is worth noting, however, that there is one relationship you might want to consider prioritizing over all others: the one you share with your private money lenders. If for nothing else, private money lenders not only serve as your access to capital but also a great means of financing business growth. It is entirely possible to grow your real estate business with their help, and it is about time more investors realized that.

How To Grow Your Real Estate Business With Private Money

Make no mistake about it, private money lenders are investors looking to make profits off somebody else. However, their cooperation with real estate investors has essentially changed today’s financial landscape. A private money lender is an investor who makes loans secured by real estate. While they may serve the same purpose as a traditional lending institution – think government loans and big banks – there are several key differences: private money lenders typically charge higher rates than banks but will also make loans that the average bank would usually pass on. It is important to note the difference between the two. While banks and similar lenders may offer the most attractive rates, they do not provide the same combination of speed and transparency in the decision-making process. For these reasons alone, private money is essential to growing your real estate business.

The average real estate investor relies on a steady flow of private money to supplement their respective deals.  Not only are institutional loans lengthy and cumbersome, but they can also impede the progress of a residential redeveloper.  Conversely, private money can afford investors the ability to grow their business at a steady pace.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

 

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.

A Guide For Private Money Lenders How To Attract Investors

While each individual investor may have their own agenda when it comes to a particular exit strategy, the returns provided by an investment are of the utmost importance. For all intents and purposes, the ROI is the motivation behind any investor. After all, money means security. Who would not want to maximize their ROI? Having said that, private lending is perhaps one of the best ways to increase returns. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers.

The Pros of Private Lending

Assuming you have decided to pursue becoming a private money lender, it is important to familiarize yourself with the benefits it provides borrowers. However, it is equally important to know the drawbacks as well. As with any new business venture, you will face both positive and negative circumstances. The decision of whether to proceed with this moneymaking strategy lies in the balance. Do the pros outweigh the cons for you? The following illustrates some of the biggest pros involved in private investing:

The Pros:

• Reliable Cash Flow: While there are no guarantees, private money lenders can typically expect an annual return somewhere between 8% and 10%. Depending on the loan structure, there may be other ways in which profits are realized, like interest.
• Capital Preservation: In loaning your own money, your investment will be secured by a first position “priority” lean on the property in question. Additionally, the loan-to-value (LTV) ratios are typically 60-70%, allowing the invested capital to be preserved in the event of foreclosure. Structured correctly, and your investments are very safe.
• Diversification: As an Arizona private money lender, you are encouraged to diversify your portfolio.
• Minimal Volatility: Loans are typically short in their length (usually not more than 12 months).
• Passive: Private money lenders earn relatively passive income, in that their money is working on their behalf. The return on investment is not correlated to the amount of time they put in.

Private Lenders: The First 3 Steps To Get Started

Whether you are interested in having your money work for you now or in the future, understanding what it takes to get started is a critical step. Having said that, it is imperative to equip yourself with the right tools should you decide to become a private money lender. Before you make the transition from the borrower to a lender, be sure to familiarize yourself with the following:

Make Sure You Qualify: Prior to becoming a private money lender, you must become seasoned. Essentially, you should be actively investing and using the systems that are offered to you. Moreover, if you have already rehabbed, wholesale, or turned profits with some relative degree of success; then there is a good chance you are ready to make money with the money you have already accumulated. You really cannot know where you are going until you are familiar with where you have been. Provided you meet the qualifications, you will also need to make sure that you can afford to become a private money lender. In other words; can you manage your monthly expenses while simultaneously working as a private money lender? If your answer is yes, becoming a private money lender may be right up your alley.

Pick An Angle: As a private money lender, there are multiple routes to consider. However, your choices will be entirely dependent on the amount of funding you have available, how long you want your money tied up, and the time you must dedicate to a particular opportunity. In order to better understand the directions, you can take, consider the following criteria:

• Residential vs. Commercial
• Short Term vs. Long Term
• Direct vs. Passive 

Each of these options will become available to you as a private money lender. It is up to you to choose the path you want to take.

Speak With A Professional:

Those set on becoming a private money lender should seek council with a professional that has already done it. Moreover, speaking with someone that has already done what you want to do can lead to some valuable insight. However, if you choose to lend directly, you should speak with your personal team of professionals. This includes your Escrow Company, Title Company, attorney, and anyone else who may be of concern.

It is an even better idea to speak with a team of people who have been private lending for a while. While you may want to try direct lending, finding a private lending company with a good track record is an exceptionally good place to start. Remember, investing with a pool of people is one of the safest ways to go.

If you have had success attracting private lenders, share your advice below:

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.  

What Is Hard Money Lending

 

Hard money lending is another alternative to traditional lending sources and allows borrowers to use the investment (in many cases a property) as collateral on the loan. While many lending sources rely on a borrower’s credit history, hard money lending relies on the asset in question. Hard money lending will typically require higher interest fees than traditional loans but can provide borrowers with increased access to capital and a more lenient approval process. Investors with low credit and high equity in a property will often turn to hard money for funding. Additionally, property owners at risk of foreclosure may also utilize hard money loans.

How To Become A Hard Money Lender

Hard money lending can represent a unique opportunity for investors with extra capital on their hands. Though, with any financial decision, it is important to mind due to diligence and premeditates any potential risks. If you are interested in becoming a hard money lender, here are a few steps you can follow:

1.      Name your business and create your company structure.

2.      Set up an online presence for your business.

3.      Seek legal counseling on the creation of a limited liability company.

4.      Investigate potential investment opportunities.

5.      Make a business plan and draft the criteria of future loans.

6.      Project the future financial outcome of any potential loans.

7.      Launch your hard money lending business.

Pros Of Hard Money Lending

Hard money lending Arizona gives investors the chance to stay active in real estate, without necessarily adding a property to their portfolios. Some hard money lenders may never purchase a property themselves at all. This can be a huge perk for anyone without the time and resources to acquire a real estate deal, as it allows lenders to tap into the lucrative potential of real estate without “getting their hands dirty” so to speak.

Another major benefit of hard money lending is the degree of control it offers. Hard money lenders get the final say in who they work with and on what terms. Anyone who has purchased a piece of real estate likely remembers the process of applying for funds, waiting on application approvals, and going through negotiations. Being a hard money lender puts you in the driver’s seat—and that is quite an attractive perk for many.

Cons Of Hard Money Lending

With any financial opportunity, there are going to be cons involved. For those interested in hard money lending, the most obvious challenge is coming up with enough capital to get started. The number of funds required can serve as a steep barrier to entry, but it is important to remember that real estate offers a great way in. Investors can work their way up by managing successful real estate deals themselves; over time they can generate the funds necessary to start lending.

Hard money lending Arizona also has an inherent degree of risk for the lender. By operating outside of the traditional loan application process that big banks use, hard money lenders can truly choose who they work with. This means taking a risk on an investor who may not be approved by some standards. To counteract this risk, hard money lenders must come up with standards of their own. Lenders should be prepared to research investors, properties, and ultimately trust their gut feeling about a potential candidate.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

 

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.  

 

Become A Private Money Lender: Tips From The Pros

 

Simply put: private money lending allows you to act as the bank for other investors. Rather than directly purchasing assets, you get the opportunity to fund those owned by colleagues and partners. By now you likely realize how beneficial this set up can be. However, there are a few more things you should know before getting started. Read through the following tips before taking on your first deal as a private money lender:

·         Start Out Small: Identify a range you are comfortable working with and stick to it. The number one mistake private money lenders make when starting out is spreading themselves too thin. Assess your finances and your preferred level of risk, and create clear guidelines for potential projects. If someone approaches you searching for more than you want to offer, do not be afraid to refer them elsewhere.

·         Find A Good Attorney: Becoming a private money lender does not make you a lawyer. You will still need help when it comes to negotiating and reviewing contracts. Additionally, if you start a private money lending business there are several legal protections you need to have in place before getting started. Find a qualified real estate attorney in your area and bring them on to your team. Their role in your company will be invaluable over time.

·         Work Locally: There are profitable real estate deals all over the country; however, there are also deals right under your nose. If you decide to start your private money lending business locally, you can meet face to face with investors. Additionally, you will likely be more available for communications and future investment options. Do not underestimate the potential of your own market, you never know what kind of deals may come your way. You can always expand in the future.

·         Be Transparent: Avoid inflating your portfolio or background to attract potential investments. No matter what point you are at in your investing career, let your work speak for itself. You do not want to misrepresent yourself or your lending business. Always maintain transparency and stay true to your mission and values.

·         Do not Forget About Yourself: Remember, just because you are not purchasing assets directly does not mean you are not an investor. Continue your professional and financial education even if you opt for the role of lender. You still need to stay on top of market trends, financial news and other factors impacting the real estate world. While you do not have a hands-on role in the investments you finance, you still need to have a strong business acumen.

·         Learn The Subject Matter: Review the types of borrowers listed above and familiarize yourself with the different deal types. Learn what factors go into a successful rehab, buy, and hold or rental property. That way when a borrower pitches a deal you know how to evaluate it for yourself. Obviously, they are going to paint the investment in a good light, but is it profitable? To be a successful private money lender it is crucial to understand exactly what goes on in the niche you choose to invest in.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.  

 

How To Become a Private Money Lender

 Private money lending can offer several benefits for everyone involved. It is not uncommon for investors to eventually expand into private money lending themselves due to these benefits. If you are interested in private money lending, there are a few steps you can follow:

1. Establish your business and obtain the required insurance.
2. Meet with a lawyer to create your company structure.
3. Identify your preferred lending focus.
4. Join a peer-to-peer lending platform or network to find possible investments.
5. Evaluate any potential clients by calculating potential returns and risk levels.
6. Start your business in private money lending.

Private Money Lending: How To Identify Borrowers

The concept of private money lending is relatively simple: without money, real estate investing does not exist. Money, like in every other industry, is the lifeblood of an investor. Real estate investors need to actively work on securing private money loans to fund their deals. Often, the average investor is not capable of funding a deal with their own money. Moreover, even if the funds are readily available, investors will seek the assistance of private money. Regardless of a particular investor’s situation, there is a particular likelihood of them needing private money assistance. Instead of having to pool money or stretch every dollar, investors are given more options to grow their business with the use of private money.

Perhaps even more importantly, is the speed and efficiency in which private money may be obtained. The speed of implementation is critical to an investor, and it can mean the difference between closing on a deal and losing one. Having the money in a timely manner can make it that much easier to close a deal.

With private money lending, you will be confronted with several types of borrowers. While each is unique, they are all looking for the same thing. Here are the four types of borrowers you may encounter:

• Rehab/Sell: This type of investor will typically purchase a residential property and complete renovations with the intention of reselling it once the project is complete. Borrowers in this sector find private money attractive because conventional banks will often not lend to properties in poor condition. Perhaps even more importantly, access to private money is more conducive to a timely and profitable flip.
• Rehab/Rent: These investors typically purchase a residential property and complete renovations with the intention of renting the property for cash flow purposes. These borrowers find private money attractive for the same reasons as investors in the rehab/sell category.
• Builders/Developers: Builders and developers will purchase vacant land to permit and develop into residential or commercial use. Borrowers in this sector are interested in private money primarily based on the speed with which the funds can be available. Also, many banks will not lend on speculative development.
• Commercial Investors: This population of investors may seek to use private money as a “bridge loan” for commercial property when a conventional bank will not lend on an un-stabilized asset.

Money Lending: How To Get Paid

Private money lending is attractive because of the flexibility it offers, not only to borrowers but to lenders as well. You see, with a traditional loan lender will generate income through interest payments made by the borrower. Private loans, on the other hand, allow lenders to negotiate exactly how (and when) they will be paid back for the loan. This opportunity opens a few perks not traditionally offered to investors. Read through the following agreements to learn more about making money as a private lender.

• Joint Ventures: As a private money lender, a profit split can be one of the most attractive options for financing investment. Investors can negotiate to receive a percentage of the final profits in this type of agreement. The amount will vary based on the contract and the investment, though it could be quite profitable. In some cases, private money lenders will even find borrowers who propose this option. Just make sure you believe in the potential success of the deal and you are all set.
• Exit Fees: This loan structure requires the borrower to pay a predetermined amount at the end of the loan term. The exit fee is often negotiated as a percentage of the overall price of the investment. In some cases, lenders may even negotiate an increasing exit fee that changes depending on when the loan is paid in full. For example, if the borrower needed a few extra months to repay the loan, then they would pay a larger exit fee.
• Interest Payments: As I mentioned above, interest payments are one of several ways to generate income from a private money loan. In fact, this is the most common setup in private money. Lenders can set an interest rate at the time of the loan approval and sit back and wait for the money to arrive. Typically, private money loans are associated with higher interest rates than other loans, making this a particularly attractive arrangement for lenders.
• Points: Points are essentially fees paid by borrowers in exchange for lower interest rates. Points are calculated as percentages of the overall loan, with one point referring to one percent of the loan amount. The reason some lenders prefer this system is that points allow them to be paid in larger sums, with additional interest payments to follow. Often, points are paid at the beginning of the loan term and are suggested by the borrower as an incentive for granting the loan. 

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: 623-582-4444
Level4Funding.com

Private Hard Money Lender
Dennis@Level4Funding.com

 

Who is this Dude? Dennis brings with him substantial experience in residential real estate. Dennis has extensive experience purchasing, renting, and selling numerous homes over the past 45 years. His first purchase was a property in California when he was 18 years old.   Dennis graduated from California State University Pomona with majors in Computer Science and Business Management. He is a Licensed Mortgage Broker, Licensed Mortgage Originator, Licensed Real Estate Agent, Licensed Insurance Agent Certified Sort Sales Specialist (CSS), Certified Negotiator (CNE), and FAA Licensed Private Pilot.  

 

Ultimate Private Money Lending Guide: How To Get Started

 Investing in real estate is essentially one of the smartest and safest strategies to promote wealth building. With the proper foundation and knowledge, investing in real estate can be highly lucrative for anyone. But let us be honest, you already knew that. Of particular interest, however, is what an investor can do with the money they make from a profitable career.

While a portion of profits will undoubtedly be allocated to the lifestyle of their choice, investors are advised to be smart with their money. Of course, you can reinvest into another property, but if you are looking for an alternative there may be one option you have not considered yet: private money lending. 

Investors who have the funds to do so should consider private money lending in real estate. This process offers the same type of underlying security and profit potential as rehabbing or wholesaling, but without actually acquiring new properties.

What Is Private Money Lending?

Private money lending is when individuals lend their own capital to other investors or professionally managed real estate funds while securing said loan with a mortgage against real estate. Essentially, private money lending serves as an alternative to traditional lending institutions, like big banks.

As rookie investors gain experience, they strive to aim higher. Leaving your hard-earned money in a savings account is no way to protect and grow your assets. At the end of the day, private money lending allows you to secure a loan with real estate that is worth much more than the loan. In some ways, this process can be less risky than owning real estate. That is why it’s important to familiarize yourself with the best real estate financing options available to today’s investors.

In the past, real estate financing typically came from banks, government agencies, insurance companies, and pension funds. However, with a list of strict requirements and a timeline not conducive to the average real estate investor, a need for alternative lending sources quickly developed. At the same time, it became obvious to those with appropriate funds that their money could better serve investors than large institutions. Now, private money lending is a critical component of the real estate investment industry. In fact, its presence makes it more possible for the average investor to run and maintain a sustainable career.

In case you were unaware, there are several benefits involved for those who choose to lend private money as well. If done correctly, offering alternative real estate financing options can mitigate risk while simultaneously establishing wealth. Of course, this is not a path for everyone. You need to ask yourself if you can afford to do so. Having a little extra money in the bank does not necessarily mean you should throw it at the first investor who comes your way. If you are equipped to mitigate potential risks and take advantage of the opportunities that present themselves, private money lending may warrant your consideration.

You may want to consider private money lending if one of the following applies to you:

• You are a real estate investor looking to expand your portfolio.
• You are a doctor, lawyer, CEO, or professional of another kind who has a great income or a surplus of cash.
• You have a sizable retirement savings account.
• You are a retiree looking for passive income investment.
• You are the owner of an estate or other trust fund.
• You are a tech entrepreneur who owns a successful startup.
• You are a lottery winner.
• You want to and can help a friend or family member.

Still on the fence? Do not worry; the following will answer any questions or concerns you may have about pursuing a private money lending business:

The Anatomy Of A Private Money Loan

The concept of a private money loan is relatively simple, three elements are required for a loan of this nature to transpire: a borrower, a lender, and a lot of paperwork.

For all intents and purposes, private money lending is perhaps your best chance to invest in real estate with no money of your own. If for nothing else, private money loans can provide for investors in need. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, banks and other financial institutions typically do not provide the same combination of speed and transparency in the decision-making process.