Investing in the property market is considered to be among the safest strategy for wealth building. It’s also quite lucrative, and with the proceeds of this venture, you can become a private money lender.
As a private money lender, you can invest in home rehab projects. Rehab loans are typically used by short-term investors to fund the purchase of residential homes. These homes are then renovated and sold at a profit.
Home rehab projects are great investments as a private money lender. Keep reading for investing in home rehab projects as a private money lender.
Private money lenders are alternatives to traditional lending institutions such as banks. Private money lenders issue short-term loans that are secured by real estate assets. They can be private lending companies or a friend.
Private lenders are also referred to as hard money lenders because they offer short term loans to real estate investors. Lenders are divided into three main categories depending on the relationship of the borrower and lender.
The first category is the primary circle; it consists of relatives and friends. The second degree is the secondary circle; it basically consists of colleagues, professional and personal acquaintances. The final group is the third-party circle, which consists of hard money lenders and accredited investors.
House flippers always struggle on how to find private investors for real estate. Well, it’s not that hard to find if you know your stuff well.
Nowadays, things are easy if you can network with people. There are lots of private money lenders out there, all you need to do is reach them and show them your level of experience. Below are a few legitimate places to look for private lenders:
If you’ve been investing in home rehab projects, you probably know that the internet has plenty of private money lending companies. You can easily get a loan to buy a house at low fees and interest rates.
Online lenders will assess you and your project. They will review the project, your capability to financially succeed, and their risk for return. In fact, most lenders prefer to work with investors who’ve had success in the house flipping market. Therefore, interest rates and fees decrease with the borrower’s flipping experience.
Your credit score will also play a huge role in determining the amount you can access and the interest rates.
Crowdfunding is an alternative source for money. Crowdfunding is when a group of institutions or individuals come together with the aim of financing loans. Each lender is supposed to contribute a certain percentage into a fund. They receive interest on the borrowed funds.
Unfortunately, crowdfunding websites rarely take part in “house flipping” projects. Crowd Funding lenders are mostly geared towards home renovation projects.
Just like most lending institutions do, private lenders rely on the three Cs of the lending world to vet their borrowers. This means that the lender must assess your financial ability and credit history. Private lenders will evaluate your collateral, borrowing history, cash in hand and income. Below is a brief discussion on how the lender uses the 3 Cs of lending:
Most lenders will require borrowers to reach a certain credit score before they get approved. The better your credit score, the higher the chances of qualifying for a loan.
Your history also plays a huge role when it comes to private lenders. They will want to check for late mortgage payments, foreclosures, and bankruptcies. Anything negative in your history might ruin your chance to obtain funding.
A private lender relies on cash flow and income to determine whether a borrower can pay for the loan in question. Besides, the lender must evaluate the debt to income ratio (DTI). There is no specific ratio that they use mainly because of income differences.
Private lenders do not mainly rely on collateral to recover their money. In fact, collateral serves merely as the backup plan in case you default on payments. This means that you can get large funding for your home rehab project even without serious collateral.
Getting the perfect lender is a walk in the park if you know what to look for. In fact, you should not do business with lenders who lack the following attributes:
As a borrower and businessperson, you should prioritize doing business with lenders who have a lot of experience. This will help business go smoothly, as well as develop a good relationship with the private lender. You can access information about their experience on a lender’s website.
Private lenders exist everywhere, however, it is important that you choose one who specializes in real estate. If possible, you should go for one who specializes in the home rehab niche. Moreover, there are plenty of private institutions that offer loans on residential and commercial properties.
Finding a private lender who offers low-interest rates and fees should be a priority. Such a lender will help you increase your profit margins. Besides, you will be more inclined to do business with them for the long-term.
Most lenders will offer interests rates that range from 7% to 12%. On the other hand, the common lender fees range from 1.5% to 10%. Other than that, try to work with a lender who does not impose prepayment penalties.
Unless you have idle cash lying around, you will need the help of a private lender to execute your home rehab projects.
Home flippers are always looking for properties to purchase, renovate and sell in order to make money. The only problem comes when you don’t have the money to invest in such properties.
Fortunately, private money loans are subject to quick approval and fast funding time. This means that you will able to work on your project with the help of short-term financing options. There is no doubt that private money lenders are best suited for home flippers who are looking for short-term investments.
Feel free to visit our page for houses suitable for home rehab projects in your area.