Most real estate investors rely on certain private hard money lenders because of their source of funds. But obtaining the funding for various real estate investments can be extremely hard if you approach the wrong lender. This article will help you tell the difference between these lenders and help you work with the ones that can help you…
Not all hard money lenders really understand rehab and resell investment plan being used by tens of thousands of real estate investors all over the country. In reality, there are various levels of private lenders:
- Commercial investment lenders
- Development creditors
- Bridge lenders
- Residential lenders
By fully understanding your business model, you will have the ability to work with the best hard money lender which helps investors just like you. For me personally, it’d be residential hard money lenders.
Aside from that, these hard money lender also differ in their source of funds. They’re bank lenders and private hard money lenders.
Bank Lenders – These creditors receive their funds from a source like a bank or a bank. These lenders give out loans to investors and then sell the newspaper into a financial institution like the Wall Street. They use the money they get from selling the newspaper to give out more loans to other investors.
Since these lenders rely on an external source for funding, the Wall Street and other financial institutions have a set of guidelines that each property must qualify in order to be eligible for financing. These guidelines are often unfavorable for property investors like us.
Private hard money lenders – The version of these lenders is rather different from the bank lenders. Unlike the bank lenders, these lenders do not sell the paper to external institutions. They’re a whole lot of investors who are searching for a high return on their investments. Their decision making is personal and their guidelines are rather favorable to most real estate investors.
But there’s a massive issue with this kind of private lenders. They don’t have a set of guidelines which they stay consistent with. Since they remain private, they can change their principles and interest rates anytime they want.
Jerry is a real estate investor in Houston who is mainly into residential houses. His business model includes rehabbing properties and reselling them for profit. He finds a property in a wonderful area of the city, puts it under contract and requests his lender for a loan.
The lender has shifted his rules regarding lending in that specific area of the city. Thereforehe disapproves the loan. Jerry is abandoned nowhere and tries to get another profitable property in a different field of the town the creditor seemed interested in.
He finds the property, puts it under contract and requests for the loan. The lender once again denies the loan to Jerry stating that the sector is under depreciation in that particular area.
Poor Jerry is left nowhere to go. He’s got to keep altering his version and needs to dance to the song of his lender.
This is exactly what happens to nearly 90% of real estate investors out there. The newbie investors who start with a goal in mind wind up frustrated and give up the entire real estate game.
The other 10% of investors who really succeed work with the ideal private hard money lenders that play by their rules. These lenders do not alter their rules often unlike the other private lenders.
These lenders especially give out loans to property investors that are into rehabbing and reselling properties for gains. The company generally has a strong real estate background and they tend to do their research before giving out loans.
They have a set of guidelines that they strictly adhere to. They do not change the rules often like the other creditors out there. If you want to succeed with property investments, you will have to find such a lender and utilize them for as long as possible.