I started investing in Real Estate by using bank loans, savings, credit cards, Business Lines of Credit, Home Equity Lines of Credit, my self-directed IRA, creative techniques with sellers (like owner financing and subject to), and equity partners. Once I got laid off, it was harder to get bank loans but that was back in the days of easy no-doc Adjustable Rate Mortgages (ARM).
I did not like how the banks would change the terms near the end of the escrow just before I needed to close, either because my credit score had changed a point or that “that program is unavailable or has a different requirement now.” I once had 3 loans get turned down just before the mortgage industry crashed, after a 4 month waiting period, while they stalled.
I could have rehabbed the houses and sold them before the bank got around to funding the deals. And banks definitely will not lend on a house without a furnace or stove. However, those are some of the best deals in real estate because no one will buy them and they are not “Lendable” since you cannot move right in and live there.
With private lenders, I have the funds available at any time with a phone call. When I see a good deal, I can make an offer because I know the money is easy to wire into escrow. While other flippers and rehabbers are scrambling trying to get approved by a hard money lender, I can make an offer that gets accepted. I can outperform my competition.
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So, the First BIG BENEFIT to PRIVATE MONEY is SPEED to purchase a property.
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What is another major benefit of having private lenders? My first private lenders were my Mom and Dad. They were used to the high interest rates of the 1980’s and wondered how to stretch their retirement money. They had Treasury bills, bonds and bank certificates of deposit (CDs). Rates were just getting lower and lower.
When I became a full time real estate investor, I told them about Private Lending. Since my Dad now needed a lot of help around the house, Mom was happy to lend money and get a high return without thinking too much about it. She loaned $60,000 to pay off a hard money lender and received 10% interest in return. She was happy with that check.
As I met more people who became private lenders, I found that only the retired lenders wanted monthly payments, and they wanted quarterly payments on the smaller principal amounts. For anyone else who is younger and/or working, they are OK with letting the interest accrue. On flips I only pay when the property is sold. If I am holding the property as a rental, I pay quarterly or monthly. The rent coming in can pay for the interest.
This way of handling the interest payments benefits you and your lender. My cash flow is much better and my lenders are getting a great return each month or quarter. They are not worried about measly bank CD rates. They don’t have to worry about the next stock market crash.
So the second BIG BENEFIT to PRIVATE MONEY is improved CASH FLOW.
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To learn more about how to find your own Private Lenders, download my ebook, Finding Private Lenders.
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