Private Money: 5 Things Every Real Estate Investor Should Know

Posted on Mar 16 2015 - 5:35am by Lance Edwards

What are the Benefits to Using Private Money Lenders?

When considering the advantages of private money, there are 6 big ones which make it a major asset in any real estate entrepreneur’s tool kit, Conner said.

No. 1: The Control is All Yours

“In my world of private money, we make the rules,” Conner said, adding that when he was borrowing money from the banks, the institution had the say on how much the down payment was, the interest rate, the terms, the frequency of payments, and so on. But, private money is different.

“I teach real estate investors how to formulate a very simple private money program to offer to the private lenders, so it gives us so much more control.”

For example, Conner said in his private money deals, his lenders expect only annual interest payments, while others opt for quarterly or semi-annual payments, but never monthly payments.

“The reason private lenders are wanting interest only and not wanting principle and interest is if I start payment them back part of their principle, then all of their principle is not earning them money,” he said. “if the money is coming from a self-directed IRA, most of the time we’ll set that up for semi-annual or annual payments.”

No. 2: Origination fees “just don’t come up in conversation.” Period.

No. 3: Close Real Estate Deals Ridiculously Fast

If you go to the bank for a loan, you might be waiting 45 days or 60 days for your money. In the world of private money, however, you can close most deals in 7 days of going under contract, Conner said.

“That’s important to a for sale by owner that’s a motivated seller,” he said. “The quicker you can close, the quicker you can solve their problem.”

No. 4: No Cash, No Credit, No Income Necessary

While you have to be seemingly bulletproof to get a bank loan, private money lenders don’t ask to pull your credit, and they certainly aren’t checking income, Conner said.

“The reason the credit never comes into play is because a private loan is equated as a collateral loan,” he said. “Meaning, the reason the money that is being loaned out is the collateral that is securing the loan. That is why credit never comes into play.”

No. 5: The Money Goes On and On and On

You might get a line of credit for $1 million at a bank like Jay Conner had, but you’re going to run out quickly. Private money can be pulled from a great many sources with some $18 trillion of funds available to help you close your deals, Conner said.

No. 6: No Personal Guarantees Need Apply

While banks will require you to guarantee your loan, Conner said every deal stands on its own with private lenders. “The only thing that is securing or that we as a real estate investor are putting up to secure that loan is the house or apartment or whatever the piece of real estate is,” he said.

But, why do private lenders like to work with real estate investors? That answer appears on the next page.

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