With the continuing recession in the real estate market and the general malaise in the economy, it remains difficult if not impossible to finance anything other than a traditional, single family real estate transaction. In fact, if you have less than stellar credit, banks are reluctant to finance those deals unless the loan is backed by a government guarantee. While this situation is problematic enough for the individual who wishes to purchase a home for themselves, it creates far more significant problems for the real estate investor. One possible solution to this problem is the use of funds from private individuals and/or hard money lenders.
Hard Money Loans
Individuals with the resources to make private money loans have the business acumen to understand and fund real estate deals that traditional lending institutions would never accept. While these individuals are willing to accept a certain amount of risk, they are also concerned with obtaining a proper rate of return for their risk and with securing the proper safeguards on their investment. Hard money loans accomplish these goals and provide much needed funds for borrowers with excellent but non-conventional real estate deals.
In the simplest terms, private money lenders provide the following benefits to a real estate borrower:Availability
There are enormous amounts of capital in search of reasonably constructed real estate deals. Lenders are usually knowledgeable in real estate transactions and can actually bring more to the table than just money.Flexibility
Similarly, lenders are aware of the constraints of business deals and can maneuver through most intricacies or details that would invalidate a traditional lending institution from making the loan.Security
All of the normal loan activities and legal niceties that one finds in a traditional real estate loan are also observed with a hard money loan. These actions ensure that both parties are protected and that both live up to the obligations of the contract.Affordability
With all fees and transaction costs included, private money loans are competitive with traditional loans. Naturally, riskier deals will require a higher interest rate or a more lucrative payoff scheme but all of these items are negotiable unlike with a bank.
Private Money Lenders
The use of private money loans is the surest, most convenient and most affordable way to fund a commercial or otherwise complicated real estate deal. Private money is always ready, willing and able.