What’s The Advantage of using a Private Money Lender?

You probably experienced negotiationg a home mortgage, or a car loan. Maybe you have even considered coordinating with your bank to acquire a loan. So you may think you’re an expert on the loan process.

But unless you’ve dealt with a private lender, you can’t really understand the advantages of conducting your fix and flip business with a private money lender.

Let’s review five benefits of borrowing from a private money lender:

Asset-Based Loans

In terms of credit score, your personal financial history is not that much of a factor in your approval for a private money loan. Instead these loans are mostly based upon the potential value of the property you seek.

The lender will hold a primary lien on the property. So this serves as their insurance of repayment rather. This is more attractive than relying upon your ability to make monthly payments under a traditional mortgage.

Some private lenders also are willing to finance a portion of the rehab cost of the property. A private lender requires you to fund a certain percentage of the purchase price of the property. This is normally 20 percent to 30 percent. The lender’s goal remains to keep their cost below a certain percentage (say 60 or 70 percent) of the expected value of the home once the rehab is complete. All of these target numbers are designed to ensure the lender will not lose money if you default on the loan and the lender acquires the house through foreclosure.

Speed

The primary advantage of a private money loan is that you get the money normally within 24 hours. This gives you a great advantage in purchasing property because sellers will give preference to offers, and frequently accept lower offers, when they know they will be getting cash within a couple of days, rather than waiting a month or more for closing.

This also gets you into the property and into your work more quickly so your money is not tied up, speeding up the process of getting your flip done and profiting.

Minimal Cost During Construction

A traditional lender will require monthly payments on the principal and interest beginning immediately after the loan is issued. You are not expected to pay against the principal on the loan until you sell the house. Private lenders require only a monthly interest payment.

Little Paperwork

No search of your personal credit history is required, thus limited the mountains of paperwork otherwise required.

A guarantor who agrees to pay the loan if you are unable is expected. Of course, the lender will need to know the purchase price of the property and the expected value after rehab. They will have a staff member or an independent contractor in your community check the house to determine your numbers are valid.

More Cash

The possibility of having three or four houses in the works at the same time for the same cash outlay can fiscally outweigh the interest you pay. The final advantage of using a private money lender is that you can expand your business to run more than one fix and flip at a time.

All of these benefits do come at some price as private money lenders’ loan rates can be higher than traditional sources. Some so-called “hard money” lenders do take advantage and charge extremely high interest rates. But when you find a reputable private lender who seeks a long-term relationship with your business, you’ll work with reasonable interest rates that will allow you to grow your flipping business.

If you are planning on starting a fix/flip project soon, contact Center Street Lending to get more details on how a private lender can help you start and grow a house flipping business. Follow Center Street Lending on Twitter.

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