And What is a Private Money Loan?
The real estate investment market in St. Louis can be fast-moving. When looking to purchase real estate investment property, sometimes securing the best deal requires you to act fast and close quickly. When you’re looking for a loan or a lender to assist you in financing your property purchase, you may not have the luxury of waiting for a lengthy, traditional loan. On top of that, if you’re using the funding to fix and flip a home in order to add value to the property, traditional banks might not loan you excess money to make repairs on the property. A private money loan could be your solution, and we know the perfect private money lender.
Many veteran real estate investors in St. Louis use a private lender and private money loans to fund the rehabbing of investment property. “Private money lender” is a term that refers to non-bank lending, instead of lending via a private person or organization. Private money lenders use criteria they are comfortable with when deciding whether or not to lend someone money. In most cases, a private money lender will use the after-repair value of the St. Louis property to determine the real estate loan amount and rates.
The lender provides funding under a contract which can take the form of a promissory note. This note will define the amount of the private money loan, the interest rate, and the term length of the loan, among other things. The lender also gets a lien against the real estate investment property which acts as security or collateral for the loan. The borrower then makes regular payments to the lender and repays the loan according to the agreed-upon terms.
Choosing a Private Lender
As a real estate investor, choosing the best private money lender depends on your requirements. If you are a first-time borrower, you can begin by learning about the different types of property and deals that are available in your area. Focus on investment ventures or commercial property that are best suited for rehabbing, rental property, or buying and holding. Once you have a target investment property you can start your search for the best loan option for you with a hard money lender or private lender.
When choosing a private money lender, it is crucial to understand the terms and conditions. The terms of the private loan can vary between different hard money lenders and private lenders. Terms typically start at 6 months but often can be renewed. The amount of the real estate loan is determined by the after-repair value of the property, calculated using a formula known as the ARLTV, which stands for after repair loan to value. It is important to understand the differences between a private loan and a traditional loan.
Benefits of a Private Loan
Speed of implementation is crucial for investors. For some investors, a private money lender’s loan can make the difference between closing on a deal and not. Private lenders have the flexibility to move quickly approving a loan that can possibly make or break a deal for a real estate investor.
Private money lenders are often able to process loans faster than traditional banks, and many are able to approve loans in as little as seven days. This is due in large part to fewer red tape regulations and less scrutiny from an underwriter. In addition, private money lenders are more likely to base their loan amounts on the value of the property after it has been repaired, so the higher interest rate is often a small price to pay for the potential profits.
One major benefit of a private capital loan or hard money loan is that it helps fund closing costs and holding costs. The interest rate can be deferred until the property is sold. The borrower will be expected to pay interest and a portion of the profit. Applicants should understand how the loan works before accepting the terms. There are several things to consider when applying for a private money lender loan. Usually, the investor is required to have a contractor, strong credit, and good credit history.
Another advantage of using private money lenders is the fast turnaround time. This type of loan can be approved much faster than other forms of financing, which means you can lock in a real estate deal faster. These shorter turnaround times are beneficial for real estate investors, making it easier to buy and flip properties. Unlike bank loans, private money lenders can negotiate the terms of the deal. While this type of loan carries greater risk, it is easier to secure and maintain than traditional loans.
Getting investor capital can be difficult unless you have an established real estate investing network. However, with a good track record, you can prove to investors that you can bring in a reasonable return. Fortunately, there are several hard money lenders that provide private money loans. One West Hard Money is one of the best providers of private money loans. If you are looking for a private money lender, start with One West.
A private money lender can offer the loan amount a borrower needs to make repairs on a fix-and-flip property. Banks offering a traditional loan will only loan up to the actual value of a real estate property making it necessary to get an additional construction loan for any improvements that need to be made.
Working with relationship-based private money lenders can help you find the most suitable funding option for your next investment property project. Your real estate agent, attorney, financial planner, or title agent may know a private money lender they can recommend. Friends and family may also be able to help you make connections with these investors. Once you’ve established some relationships, you should have a clear scope of work and a list of your previous investment projects ready for your prospective private money lender.
A relationship-based private money lender may consist of a close friend, family member, or professional acquaintance. The most reliable private money lenders will be those that are accredited and have standardized fees and interest rates. However, working with such private money lenders can be time-consuming and require some expertise.
Lenders tend to place more emphasis on personal relationships with borrowers than on financial results. In general, private money lenders may make more personalized decisions to grant loans based on information provided by the borrower, even if the financial statements indicate a different trend. Lenders will want to have complete information about the borrower to be able to give them the best possible advice. Just because private lenders have more flexibility to make loan decisions doesn’t mean that creditworthiness does not matter, credit score can be taken into account. This helps them provide the right amount of funding to the right investors, which in turn can make them successful.
In addition to personal relationships, private money lenders may require collateral. Some require that you submit a trust deed or a promissory note before they’ll consider the loan. This reduces the lender’s risk and shows the investor has “skin in the game”.
The most important factor in selecting the right private money lender is how much experience the person has in real estate investing. If you don’t know anyone in the industry, try networking on social media to establish a rapport. Social media can be a valuable tool for networking and introductions but should not be used to vet potential borrowers. If you’ve cultivated a relationship with a private money lender, the entire process will be much easier.
A few more things to note about Private Lending with One West
- Private loans and hard money lending are not bad credit loans – Private lending is for real estate investors.
- They are also not a personal loan, One West only lends to LLCs.
- Private loans are for existing properties, not new construction.
- One West loans are for 6 months and can be renewed. There is an associated origination fee and application fee.
Contact One West your St Louis Private Money Lender today for questions about hard money loans!