Why Use Private Money for Your Rehab Financing Needs?

Posted on: September 15, 2009

Categories: Investors, Reviews

Author: buyfixandprofit

Private money sources are the most flexible sources of cash an investor can obtain.   When time is of the essence nothing beats cash.  Hard money lenders and the investor friendly community banks still require some form of underwriting and an approval committee prior to obtaining your funds.  The constant demands of the underwriting loan process take away from the investor’s true money making activities which are locating great deals and managing (cost control) of the rehab process.

Cash is still king when placing offers on foreclosed properties.  Lower cash offers are often accepted over higher purchase offers that require financing, within reason.  Banks have a glut of REO’s on their books that they are trying to liquidate as fast as possible and they are sick of all the financing (this includes hard money) deals that fall apart prior to closing.  So a cash deal with no appraisal clause is a much stronger offer than one with a financing contingency.

Private money investors are typically short term lenders, 6-12 months, so they tend to look for rehabbers that are looking to fix and flip a property or refinance out of there private loan into a long term loan upon completion of the project.  Many private lenders have been in the property rehab business before and can offer valuable advice on analyzing a deal.  If a private lender won’t fund your deal, take a close look at the reasons why.  They may be saving you from an underperforming investment.  They want to see you succeed as much as you do so they can grow there money back with the least amount of headache.

Where to find Private Money Investors?

Your local real estate investment club provides a great networking forum for finding everyone you need on your real estate team.  I have seen private money investors stand up at these meetings and say, “I have money to lend and I’m looking for good deals to fund”.  Savvy rehabbers will put together an analysis of the deal they are looking to fund with exactly what kind of terms they are looking for.  This shows others that you know what you are doing and you are willing to pay for it.

Other private money lenders have never flipped a house before in their life.  They are your doctors, dentists, attorneys, and other busy professionals.  These professional are so busy that they have little time to invest there money in anything other than the stock market.  Offer them a 12 – 18% APR return on a 3-6 month loan backed by a property that will have at least 30% equity once completed.  This is a good deal in any economic cycle.  I know a couple of investors that have long term financial relationships with their dentists.  The dentists earn 15% on their money and the real estate investors can concentrate on their core business of finding great deals and performing cost controlled rehabs.  A real estate attorney can structure the whole deal for you.

Self Directed IRA’s

The majority of people do not even realize that they can transfer some of their retirement funds to a self directed IRA and become private money lenders themselves earning 12-18% on their retirement funds.  Read up on self directed IRA’s at www.trustetc.com and show others how you can make their money work harder for them.  This is a seldomly tapped source of funds that every rehab investor and property flipper can use to catapult their real estate portfolio to the next level.  This is truly a win-win situation for the private lender and real estate investor.

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