Real estate investing is the career choice of people who like big money and big deals and are prepared to take big risks. It frequently happens that you come across a really good property that you want to buy, repair, and hold for a minimum holding period before selling it at a good profit. Where you get held up is that you have no source of funding if refused by traditional moneylenders like banks. Many times, a bank may refuse loans. The investor then turns to private moneylenders. 

Private lenders are individuals who have money in banks or in retirement plans and are willing to lend it at rates of 8-10% or more instead of usual 2-3% interest that they get from banks. It is surprising that there is a large amount of such money readily available for financing genuine risk-free real estate deals. You will be surprised at the large number of people who will contact you once your intentions of borrowing finance at higher rates of interest is known to them.

How To Get Loans From Private Moneylenders
Taking finance for a safe and secure deal from a private moneylender is much more advantageous than from a bank. Private lenders are very hesitant to finance any risky deal with their hard-earned money. Make a good marketing and business plan to convince the private moneylender that your deal is aboveboard, clean, and secure. You need to explain that the investments are secured by real estate and do not exceed 75% loan to value of the property after it has been repaired. He will approve of the loan, once he is convinced of the sincerity and honesty of the deal.

Terms For Financing The Deal

Most private moneylenders have surplus money. They may not be expert businessmen or real estate investors and avoid putting their money in these ventures. They may not like to invest in stock markets because of their high risk factor and would rather lend their money to a safe and secure prudent real estate investor, at higher rate of interest than what the bank gives. This way, they earn a substantial profit with minimum labor and market risk. The formalities involved in the procedure are very simple and do not involve too much paperwork. Some nuances of such deals are:

• There is no board of directors or large groups to approve the loan application.
• Only the person who is lending his money need approve of the loan as soon as he can get an appraisal of the property. The economics of the deal work in a manner that the private lender has to be convinced that the security for the loan is more than the loan amount.
• There is a minimal approval process, so availability of the funds is very quick, easy, and hassle-free. 
• The title of the property should be clear and marketable.
• Generally, the private lender will require you to buy a lender’s policy of title insurance for them. The property is then insured with the lender as loss payee. 

Closing The Deal
One of the greatest advantages of borrowing from a private moneylender is that there are no additional procedural expenses, closing costs or any underwriting charges. The deal can be closed once they get an appraisal of the property. A private lender expects you to buy the legal lender’s policy of title insurance for them at time of closing. Also, they may like you to have the property insured with their name as loss payee. Each investment is based on a specific property and its safe investment prospects. Once the private moneylender approves of your project within a day or two after checking on its status, he then wires the funds to the closing attorney to be held in escrow, within 7-10 days. After the closing, the lender will receive a promissory note from you personally, your business entity or both, a deed to secure debt or mortgage on the property, title insurance, and a listing as a mortgagee on the hazard insurance policy.

There can be more than one private moneylender for a single project. The large investor can be a first position mortgagee; an additional percentage interest rate hike can entice subordinate position mortgages. It is a win–win deal, as the private moneylender gets a higher interest rate with a secure investment while you get a deal with minimum hassles

 

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