Finding suitable financing for your real estate investments can be challenging in today’s business environment. That’s where private money lenders can make a big difference. This article spells out how to find private money lenders and finance your deals.
What Are Private Money Lenders?
Private lending is provided by individuals or investment companies, not banks or mortgage companies. Individuals can be family, friends, or business associates with the funds to invest in a worthwhile project.
Private investment companies, also known as hard money lenders, are funded by investors seeking a return on investment. Their projects are typically real estate investments from rental properties to fix and flip projects and residential to commercial real estate.
The advantage of private lending is that it brings a great deal of flexibility that banks couldn’t possibly offer. That includes a more effortless and quicker qualification process, a simple application process, lower closing costs, and flexible repayment terms.
Depending on your relationship, the terms can be very flexible with individual lenders. With money lenders private, they’ll have more loan criteria as well as quite possibly higher closing costs and interest payments. They still offer significant advantages over traditional bank loans and mortgages.
How to Find Private Money Lenders
As with any business venture, there are concrete steps you can take first to find and then secure financing from a private money lender. Here are the key steps you’ll need to take.
- Understand Private Money Lending Requirements. Whether you’re searching for an individual or an investment company, they will have several requirements. Those include the expected return on investment, the security or collateral for the loan, the risks inherent in the project, how they will get their money back, including payment plans, and, underlying everything, your overall plan details, and feasibility.
- Build Your Money Lending Private Network. Network building should include family members, friends, and acquaintances who can either serve as lenders or recommend others who can provide funding. Look also at business networking events and clubs as well as association meetings. All this can help you find others in the same business who can offer insight into available lenders.
- Research Private Money Lenders. The network is just the start. They will provide leads, and you’ll need to conduct background research into the more viable options. Internet searches can provide a great deal of information. Your research should also include reviews and ratings from others. It’s also wise to seek out those in your network who have worked with one or more prospective lenders.
- Consider Your Financing Needs. It’s critical that you find a private lender that matches your needs. They, in essence, will become your business partner. Not only that, but as you grow your business, you want them available for the following projects. Developing a perspective on your financing needs begins with a detailed business plan.
How to Finance Your Deals
As you can tell, finding the right private money lender can be a challenging but rewarding effort. Once you’ve found the right lender, the next step is to finance your deals. Here are the critical elements needed to secure a loan.
- Develop a Detailed Business Plan. Write up your overall goals with a focus on the financial aspects. This business plan can guide your efforts and demonstrate to lenders that your business and projects are sound investments. It will be a critical part of your real estate investment loan application.
- Document Your Previous Projects. Build a summary of your previous projects to demonstrate your successful experience. The project summaries don’t have to be detailed. But photos, timelines, and financial results will help your application. They will prove that you have a successful business where the rubber meets the road, with completed projects demonstrating a return on investment that will attract a private money lender.
- Develop a Compelling Business Pitch. Documentation of your business plan, including your previous successes, should be the basis of a solid sales pitch. That pitch must bring everything to life for the prospective private money lender. Include why you need funding, how much you need, and what makes your business a sound investment based on your experience and proven expertise.
- Contact the Private Money Lender. After all that research and documentation, it’s time to contact the lender and start the application process. But don’t move out of the evaluation stage just yet. During the application process, note the lender’s response rate, their overall approach, and if they are interested in your business. If things don’t feel right, they often aren’t right. In that case, it may be time to move to another private money lender.
We hope this brief review has provided insight into finding private money lenders and financing your deals. Click here to learn more about funding your projects through Sharestates.