I am sure everyone has heard of the following term "private money" or "hard money." People have visions in their head of mobsters and cement shoes. I have found people love to fantasize about the movies. However, private money is part of doing real estate. We are in the midst of a huge foreclosure storm hitting across America. There are plenty of deals for everyone. However, one must know how to structure and close a deal. Conventional interest rates fall between 7 to 10%. Private money is between 12-18% and 2-8 points upfront on real estate deals. There is quite a difference as one compares the numbers above. The private money lender is making a great return on money. Why would a private investor accept the higher terms when conventional financing is much lower? I have experienced the following reasons why an investor will accept the higher private money terms due to the following:  

Time  

Speed is the name of the game when it comes to closing deals. It is first come; first close that gets the deals. Conventional financing is taking up to 60 days from start to close. That is a long time for the other person to receive their money. Conventional financing requires the buyer to submit all of their documentation to obtain approval for a loan. The lender must order the appraisal. There are no guarantees since lending guidelines have tightened up. The seller will not want to wait for their money. Anything can happen during those sixty days with the buyer such as cold feet, not qualify, death, divorce and so on. Private money funds in seven to fifteen days. The property itself is the collateral for the loan. My private money lenders make decisions within 48 hours versus conventional financing. The private money lender is always looking to lend their money out to investors. Americans are always willing to pay for convenience and speed. Private money lenders fulfill this need in both ways.   

Privacy  

Nowadays, the conventional lenders ask for everything including pay stubs, bank statements, financial statements, social security number, picture I.D., last two year tax returns and etc. to qualify for a conventional loan. Also, the lender will pull one's latest credit report. Overall, the borrower is giving over all of their personal information in order to qualify for a loan. Well, some people are very personal and do not wish to give over this information. Many people are facing divorce, death, and taxes owed so they may not want to disclose these items at the current time. Private money lenders do not ask for this type of information. People are willing to pay extra for the loan so they do not have to go through the hurdles to obtain a loan. Plus, they do not give out their personal information for any reason. Americans love their privacy.    

Qualifying  

The real estate investor is a special borrower. Many times the investor will have five or more properties with conventional financing. Why? It is because they believe in investing in real estate and obtained conventional financing to cash flow the properties. Institutional lenders are putting many extra stipulations when dealing with non-owner occupied loans since mortgage fallout of 2008. One must jump through hurdles to qualify for a loan. Lenders are looking at credit scores and debt to income ratios. They do not do stated, stated loans at this point. The investor must prove their annual income for the last two years. It is killing self-employed people who have high credit scores with high reserves. However, they are unable to obtain a hummingbird loans cash installment loans no credit check. The two things institutional lenders look at include the following: ·        

Proven track record of paying back loans It works a little differently in the private money world. The property is the collateral for the loan. The private money lender will usually lend up to 65% hummingbird loans online loans no credit check direct lenders to value along with points plus 18% interest for the private money loan. They do not look at a person's credit score. Private money lenders do require "skin in the game" with a down payment between 5-20% of the purchase price to secure their money.  

More Money in One's Pocket

It is all about money when it comes to real estate investing. The institutional lender requires the investor to put down 25% down payment of the purchase price. The lender does not look at the equity in the property. So, the investor will use the private money lender to close on the property with no seasoning requirements. Then, the investor will do a rate and term refinance with no seasoning required by the lender. This means the investor has more money in their reserves and the private money lender is making money on their investment. Everyone is happy in the transaction.

Lending Criteria  

The institutional lending is much more traditional compared to private money lending. Private money lending is based upon the property itself and personal relationship. The private money lender has four main points of criteria when lending to include the following

1.    hummingbird loans native american loans for bad credit to Value- Currently, private money lenders loan up to 65% loan to value when it comes to residential and commercial properties. Land is at 50% loan to value. Money is tight in this type of market. Developing a personal relationship with a private money lender is part of one's success in real estate investing.

2.    Types of Property- Residential, multifamily and, commercial are easy to obtain private loans. However, it is hard to find private money for land during this time in the marketplace.

3. Cash Flow- Some private money lenders do look at the cash flow in order for the borrower to pay on the monthly note. The private money lender wants to know that the borrower can pay on the note and pay back the loan at the end of terms agreed upon.

4. Exit Strategy- Private money lenders want to know the extra strategy before they lend out the money. They want their money back at some point in time so they can put it back out in the marketplace. My private money lenders love my exit strategy. The majority of my buyers take the property down with hard money. Then, start a rate and term refinance the next day to transition them from private to conventional financing. It is a process I have perfected over the last six years and beyond.

5. Interest Rate- Private money lenders charge from 12-20% for their money. The private money lender will lower his/her rates with a long term relationship for paying back the loans. One must prove themselves in this marketplace. A man's word is still worth something when it comes to private money lending.  

Conclusion:  

Investors must develop relationships with private money lenders to take advantage of all the great deals in this marketplace has to offer at the current time. Otherwise, many great deals will pass one's desk without the ability to close quickly. We have developed the Real Estate and Beyond Network to assist investors when investing in real estate. We have proven relationships with private money lenders in and out of state at this time. This opportunity will not last long. So, I encourage everyone to take advantage of this time to build one's wealth.   About the author: Harry F. D'Elia III is the Founder and CEO of Real Estate and Beyond. Host of the popular Real Estate and Beyond radio show hosted each Saturday from 12-2PM Phoenix time on KKNT 960 AM. Harry continues to assist people in building their wholesale residential portfolio one home at a time. Please visit www.DeliaTeam.com for further detail or call at 480-303-1800. Make the Call, Set the Plan and Do the Deal$.