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In today’s competitive real estate market, an increasing number of real estate investors are turning to private money lenders to help them close deals faster, enhance property valuations, and increase their returns.<\/p>\n
The problem with private money lenders is that good ones are hard to come by. Let’s look at what private money lenders do and how they operate, as well as the potential benefits of using private or hard money loans and how to locate and select a reputable private money lender.<\/p>\n
Anyone with a little extra cash can become a private lender, but that doesn’t mean that every private lender is a good fit for a real estate transaction. The following are some helpful suggestions for vetting a private money lender:<\/p>\n
In comparison to larger banks or even a local credit union, private lending is more reliant on relationships. The better a private lender’s chances of acquiring money for future projects are once they know they’ll be reimbursed on time and can trust a borrower.<\/p>\n
Because private lenders<\/a> rely on word-of-mouth rather than advertising to the broader public, they can be more difficult to locate, but they are well worth the time and effort.<\/p>\n The first step is to consider a private money loan from a lender’s perspective. Unlike a major bank that the Federal Reserve backs, a private money lender is risking his or her own money.<\/p>\n A private money lender will want to know the following things, in addition, to understanding the asset and how a private loan will be utilized to boost value:<\/p>\n Real estate is a people-oriented industry, and practically everyone in it knows that. A private money lender who is excellent at his work can typically be found by asking fellow investors and others in a real estate investor’s network, such as:<\/p>\n Private money lenders can be located inside and outside the real estate business. \u201cEven though a lender lacks real estate experience, if a potential deal is appealing, he or she may be prepared to supply financing,\u201d says Joshua Blackburn, CEO, Evolving Home<\/strong>. \u201cWorking with a private lender outside of the firm, on the other hand, may necessitate an investor spending more time discussing the deal’s characteristics to the private lender,\u201d he adds.<\/p>\n Like any other lender, a private money lender does not want to have to follow down a borrower for a missed payment, foreclose on a loan and reclaim the property, or get a smaller return than projected.<\/p>\n A pitch book, also known as a deal book, is a presentation prepared by an investor for a private money lender that describes the deal, how it works, and how both the investor and the lender would profit.<\/p>\n The following is information to offer to a private money lender:<\/p>\n Developing a relationship with a potential private money lender is a two-way street. A private money lender likes to be impressed by a borrower, as an investor wants to feel at ease with a client.<\/p>\n The slow and easy approach usually works well when meeting with a private lender. By talking to a lender through each step of the proposed agreement, including anticipated expenses, dates, and how predicted profits will be distributed, an investor can improve his or her chances of securing a private loan.<\/p>\n The more at ease a private money lender is with the borrower and proposed project, the more possible an investor is to receive funding from a private lender.<\/p>\n Grant McDonald is vice president-corporate development at 14th Street Capital.<\/em><\/p>\n This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.<\/em><\/p>\n To contact the author of this story: To contact the editor responsible for this story: The post How to vet private money lenders for real estate investing<\/a> appeared first on HousingWire<\/a>.<\/p>\n1. Gain a basic understanding of how private loans function.<\/h4>\n
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2. Establish a private money lending network for real estate.<\/h4>\n
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3. Put together a deal pitch book.<\/h4>\n
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4. Make a list of potential lenders.<\/h4>\n
Grant McDonald at grant@14thstreetcapital.com<\/a><\/p>\n
Sarah Wheeler at swheeler@housingwire.com<\/a><\/p>\n