For many real estate investors, finding the right property and negotiating the best deal is a challenging and rewarding process. Finding the money, however, to finally consummate the deal is a somewhat daunting ask and often more than a little trouble.

Most investors look for the easiest route possible even if it is not the best financially. The following are three of the more common paths for finding money for real estate investments with their pros and cons:

Family and Friends

While often the easiest path to investment capital, borrowing money from friends and family is fraught with pitfalls. Most particularly, a default on a loan can ruin lifelong friendships and damage even a family relationship. In addition, these private arrangements tend to be informal and misunderstandings about the terms can also lead to strained relations. For your own peace of mind, you should only consider this option for the safest of deals with a minimum of risk.

Traditional Lending Institutions

Banks, savings and loans and other heavily regulated lending institutions are excellent sources of investment capital for single family homes and other smaller properties. Unfortunately, for any deal that is in the least bit unusual or falls outside their normal lending parameters, investment capital is notoriously hard to obtain. These institutions will only lend on the safest of deals and will not even consider many non-traditionally constructed deals.

Private Money Lenders  

For unconventional or non-traditional funding of a real estate deal, private money lenders are an excellent option. Private or “hard” money loans are generally provided by experienced and astute investors and offer a host of benefits to the borrower.

First, private money lenders make their own decisions. Since they control their own funds, all decisions about a deal need only be approved by them instead of by a loan approval committee. In addition, the deal points are completely negotiable and can include changes to the interest rate, the length of term and the loan to value ratio. Secondly, private money deals are as secure as any other type of real estate loan. The loan process includes inspections, appraisals and escrow as well as all pertinent legal documentation.

In short, private money lenders offer speed, flexibility and affordability to the advanced real estate investor. Consider them first when you find a deal that you need to finalize quickly and with a minimum of complications.