You may have questions about how Private Money and private lending work together. You may want to know what the benefits and downsides of private lending are. We have spoken a little about Private Lenders. In essence, Private Money is associated with lending money to an investor by a private individual, business, or organization. You may know that banks are traditional sources of financing for many purposes including real estate. What we want to explain is that private lending is offered by individuals or organizations and may have non-traditional qualifying guidelines. It is really important to recognize that there may be higher risks associated with private lending for both the lender and borrowers. The beneficial thing is, there is traditionally less “red tape” and regulations dealing with Private Money that really makes it worth it.
We want you to know that private lenders are motivated by the higher returns in interest rates. Even though there are risks attached and a lot of money to lose and even legal proceedings at times, Private Lenders make so much money that is it worth the risk involved. The thing to know about the process is the fact that Private Lenders often utilize banking procedures and get a deed on the property in addition to insurance in their name. This protects the lender the same way a bank gets collateral to help insure they are repaid in the event of a default on the loan or catastrophe to the property.
The fact that keeps Private Money a safe way to go is that lenders must comply with state and usury laws by the federal government. This places a safeguard on the funding. Money lenders also are not exempt from banking laws. Furthermore just so you understand, if the loan is made to an investor, the lender may have a limit on how many loans they can offer. In many states if this is the case, the private lender may be required to have a banking license.
Check the Lender Out
We also want you to understand that anyone with a lot of money can essentially lend it out, so you need to be on the lookout for dishonest people just as you would with any business deal. It is our advice that you attempt to check your lenders out by going to the better business bureau website or the Department of Commerce website.
When you do your research, make a list of the lenders’ information on a spreadsheet. When you come across a new lender, you can do a search from your own database by phone number, business name, address, individual’s name or whatever category you wish to create. It is possible that shady lenders go by several different names. This method helps you cross-reference the lenders on your list to identify lenders that may not be reputable.)
What to Expect
It may be good to know that most Private Lenders don’t want to hear from you until you have an actual deal. If you have a deal going, it is natural that most of you will need to know if you have funding before you put out offers on a property. Of course, you will want to know the costs of the funding so you can price it in to your action plan. We want to see you succeed, so remember to use your best judgment always when proceeding with this kind of funding.