Why do Private Money Lenders Like Real Estate Investors?
Everything comes in threes, they say, including the reasons why private lenders want to do business with real estate investors, Conner said.
No. 1: Private Money Lenders Make Exponentially More in Real Estate
For the average 12-month certificate of deposit, you can earn a “whopping” 0.23 percent. “That’s less than a quarter of a percent,” Conner said. Even at a credit union, they will only earn about half a percent. But, real estate investors can pay out earnings of more than 20 times the money these lenders can expect at traditional institutions.
“Well, if we as the real estate investor could come along and pay them 7 percent, that’s 14 times more than a half percent. Pay them 8 percent, it’s 16 times,” he said. “Pay them 10 percent, that’s 20 more times the money they could make in a 12-month CD.”
No. 2: Their Investment is Safe and Sound
Secure, Conner said, because the private money lender will get a deed of trust or mortgage, depending on the state of the property, just as a bank would. Safe because it’s a “conservative loan,” which prevents the lender from giving more than 65 or 75 percent of the after-repaired value of the real estate property. “So, it’s safe and secure,” he said.
No. 3: Volatility is Low in Real Estate
Unlike the stock market, where investors face volatility in their investments, Conner said private lenders enjoy fearless investments with no fees or commissions coming out of their money.
“You buy or invest in a stock today, well that principle could be more or it could be less tomorrow, or in a week, or next month,” he said. “Let’s say the loan out $150,000 to a deal. The principle remains the same. They are getting a reliable, predictable, known rate of interest returned on that principle, and then all the principle gets paid back plus any unpaid accrued interest to the private lender when the property sells.”
Conner also said private lenders can also get money back from bank refinancing on the sale of a property that is rehabbed with a demonstrative record of rental history.
So, where can you find these private lenders? The answer is right here.