Private money lenders are a great option to have for investment properties. While traditional banks have come to look at money lending as an exercise in taking advantage of interest rate spreads, private money lenders look at investment properties the same way that borrowers do: in a word, as an investment. This means that the goals of private money lenders are perfectly aligned with yours as an investor. Here are eight more reasons to use private money lenders for your investment properties:
1. Private lenders for real estate are offering competitive interest rates. Since a loan on an investment property is secured by a recorded Deed of Trust, private lenders can offer interest rates that are competitive with the open market. Additionally, since private lenders for real estate are looking for investment properties, they are more likely to offer these rates on properties without a current cash flow than traditional banks, which are still restricting lending.
2. Loan repayments are still made to a loan servicing company. Private lenders use fully insured and licensed loan servicing companies, so your monthly payments are made to a recognized institution, not to an individual.
3. It is less frequent for private loans to be packaged and resold. Private lenders for real estate look specifically at you and your property to make an investment decision, and once they have found a good risk they are unlikely to sell their investment. This allows you a measure of confidence that you will still be doing business with the same partners for the life of a loan.
4. Private loans are faster and more flexible than other loan options. Since private lenders use the same investing principles as you do, they are able to make a quick decision, allowing you to avoid the lengthy process of traditional bank underwriting.
5. Your FICO score is not as crucial with private lending. Private lenders for real estate do not rely as heavily on your FICO score, and instead use their investing experience to determine if you and your property are a good credit risk based on all factors.
6. Private lenders’ debt service coverage ratio is less strict. Since private lenders do not have the same underwriting process as traditional loan servicing arrangements, they have more flexibility to look at other factors influencing loan repayment.
7. Private lenders offer shorter terms. Shorter terms allow you to secure the property, avoid prepayment penalties, and look to traditional financing once the property is stabilized if necessary.
8. Private lenders for real estate give you better access to loans, while keeping traditional loan benefits. With private loans, you still have the same protections as with traditional bank loans, but are able to take advantage of a hard money loan process that moves more quickly and is inherently more flexible than conventional permanent financing.