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How to Find and Approach Private Lenders For Real Estate Investments

Posted by Ken Meyer on Fri, Aug 09, 2013

describe the imageIf you've tried going the bank route for your real estate investments, you know that they're not really serious about the business. Many of them are still barely making loans on owner-occupied properties. Having the vision to see the opportunities in investment properties is simply beyond their capabilities, in most cases. The best way to find debt for real estate investing is to turn to private lenders.

Private Lenders are people just like you. Instead of making their money by buying, rehabbing and selling houses, though, they make their money by helping you do it. They get their exposure to the real estate market by filling the void that traditional lenders have left. Most offer relatively short-term loans and do extensive due diligence before lending, but they apply different standards than a traditional lender. This is why they're lending when banks aren't.

Once you start looking around, Private Lender's aren't hard to find. However, finding a good one is a bit more challenging. Since the private mortgage market is completely unregulated, the cost of your loan can fluctuate greatly between lenders. The terms of the loan can also vary. One of the best ways to protect yourself is to work with a private lending company that has a track record. These companies either lend their own money or serve as bridges between borrowers and individuals that have money to lend. They're frequently state-licensed and have memberships in industry associations like the American Association of Private Lenders.

To get the loan, you need to approach the lender in the right way. Remember that while banks lend out other people's money, a private lender is lending out his own money. As such, his primary concern is making sure that, no matter what, he'll get it back. To increase the likelihood of this happening, he'll usually offer you a relatively low loan to value ratio of around 60 percent. This leaves enough equity in the property that he can resell it if you don't make your loan payments and get his money back. It also means that you've got enough of your own money in the deal that you'll be motivated to protect it by making the payments. When you approach him, remember this. He wants to partner with you in buying a great deal, and if you'll take a risk, he'll take a bigger one with you. 

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