Real estate investment loans are great business opportunities for both borrowers and investors. While borrowers benefit from having access to fast, flexible money, investors get the benefit of putting their money to work on a relatively safe investment at a healthy return. Here are 9 things that both borrowers and investors should know:
- There is a great deal of money to be made in the real estate market today. Between the opportunity to provide from flipping properties and the long-term holding opportunities that exist in the face of increasing rents, it is a great time to buy and lend on real estate.
- Private real estate investment loans are for qualified borrowers, only. If you do not have a down payment, do not expect to get a loan.
- Private loans are quick. Because they do not have to pass through bank underwriting, they should be able to go from application to funding in three weeks or less.
- Many properties need special loans. While traditional banks can fund loans on traditional properties for traditional borrowers, investors taking advantage of the unique opportunities in today's real estate market need alternative capital sources.
- Credit scores do not tell the whole truth. While banks are very quick to accept or deny a borrower on the basis of their FICO score, private lenders can look more deeply at a borrower and find people who are a good risk regardless of what their three-digit number says.
- Short terms are good for borrowers and lenders. While they minimize a lender's risk, they also give borrowers enough time to stabilize a property and then to place traditional permanent financing.
- Real estate investment loans cost money. Borrowers should prepare to pay reasonable origination fees and potential lenders should be prepared to put some time and money into conducting due diligence on their borrower.
- 40 percent down is a good idea. Not only does it make it easier for investors to get a loan, but it also makes it more likely that they will pay it back. This protects the lender by both increasing the likelihood that they will get their money back as well as leaving enough equity in the property to protect them should they need to foreclose on it.
- Your money is better off in real estate than in the bank. While borrowers can use their equity capital to buy properties with upside, lenders can earn healthy returns.