*Includes expert insights from one of our private money lenders, Jeff Safi.
Private money loans are a quick solution for financing or refinancing a real estate investment. Especially if you don’t quality for traditional financing or don’t have time to go through the many hoops at a bank or other traditional lender.
That being said, a lot of people are unsure of what a private money loan actually is. Furthermore, they’re unsure of the scenario where they could use private money in real estate. That’s why we’ve put this blog together – to explain what you need to know about this form of lending.
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A private money loan is usually a short-term loan used to purchase or refinance real estate. It’s primarily used for real estate investment acquisitions.
The loans are provided by private lenders, as opposed to traditional financial institutions such as banks or credit unions. Unlike these traditional players, private money lenders are far less burdened by red tape and regulations, which makes accessing finance quicker and more straightforward.
The terms usually run for around 12 months. Although, the loan term can be extended from 2-5 years. The amount that a borrower can get using a private money loan is of course based on the value of the property in question. The property may be one the borrower already owns or it may be the property the borrower is looking to purchase.
The formula for establishing the lending dollar amount with a private money loan is often the ARLTV (after repair loan to value). This is based on the ARV (after repair value). It differs from traditional lenders who typically rely on the “as-is” value.
For example, a private money lender may view a $200,000 property in need of $50,000 of improvements as worth $400,000 when the work is complete and may lend 65-70% of the ARLTV against the $400,000 after repair value. Where as a traditional lender would lend on the “as is” value.
A conventional mortgage would take anywhere from 60-90 days to close. Where as a private money loan would take anywhere from 3-7 days to close.
These loans can be extremely useful if you don’t have the equity to finance a real estate investment opportunity. They can also be a good alternative to traditional property loans, as acquiring finance through traditional routes takes time and there are a lot of different hurdles along the way. And, as any experienced real estate investor knows, speed is everything.
They also fall into a number of different categories, which are used for different purposes, such as:
Private money loans provide quick access to financing for real estate investment deals, in a market where speed is everything. However, they may come with slightly higher costs. Therefore, before you look into these loans, it’s worth assessing the pros and cons:
The first thing to remember is banks and credit unions do not offer these types of loans. If you want a private money loan, you need to find private investors or a fund of investors, known as a private money lender.
If you’re looking for a private money loan on the East Coast, contact We Lend and speak to a member of our experienced and highly-qualified team.
WE LEND OFFERS A RANGE OF PROGRAMS TO SUIT EVERY TYPE OF RESIDENTIAL REAL ESTATE INVESTOR.
Private money represents a great opportunity for real estate investors. If you need to act fast on your investment or have financial complications holding you back from accessing conventional types of financing, then having an experienced asset-based lender in your Rolodex can be a strategic advantage.
To ensure you make private money work for you, you need a clear exit strategy and the right property. However, other than that, use them as the first stepping stone or another building block in your investment portfolio.