There are a plethora of financing options for real estate outside of conventional loans and traditional banks. Real estate is one of those industries where anyone can make a profit with little time, information, effort, and money. Receiving private loans or money from individuals is a lot easier than you might think and has many benefits for both the borrower and the investor.
What are Private Loans?
Private loans are any kind of loan that does not or did not come from a commercial bank or credit union. Private loans can be funded by friends, family, or strangers and are given based on a personal, or professional (proper assessment of risks and rewards), relationship between the individuals.
Private loans are not hard money loans although both can be funded by individual investors. Hard money loans are approved based on a loan-to-value ratio assessment against the investment property; whereas, private loans are approved based on whatever terms and rationality posed by the investor.
For Borrowers: Private loans provide truly flexible terms: everything is negotiable. Approval standards vary and investors will look beyond credit and consider applicants who were denied traditional loans in favor of real estate experience or a history of good investments.
For Investors: Providing personal loans to fund real estate projects is a truly passive form of generating income. The investor doesn’t have to search for properties, do construction work or worry about the resale: it is truly passive income. Investors are also able to make great returns on their investments as private loans carry very high-interest rates.
For Borrowers: Private loans are expensive. Over time and depending on the project, hard money loans or traditional financing may be better options if you can qualify.
For Investors: There is no guarantee of a return. Private loans are not backed by banks and although the investment property is used as collateral, investors have to personally go through the steps for foreclosure which can be costly and time-consuming.
All-in-all private loans are a great way to start or build your real estate portfolio if you have the right connections and investment opportunities. The best way to find private investors is through networking. Brokers, real estate firms, and real estate clubs often have lists of private investors looking for investment opportunities. Make sure your investment opportunity is well thought out, well researched out, and beneficial for both parties before making contact. Keep it short and to the point and you’ll be on your way to growing your portfolio in no time.
Contact New Horizon Capital Funding today to get the financing you need for your next investment property.