Hard Money Vs Private Money - What Type of a Loan Works Best For You?
When trying to raise the initial funding for your investment, there are several things to consider.
For example, would it be in your best interest to enlist the assistance of a hard money lender or would it be better to use the resources of a private money lender.
There are pros and cons to both methods of financing, and after you have weighed both, selecting what works best for you should be much easier.
Hard money lenders include small companies and individual investors, and are a good source of quick cash.
Although the money is readily available and easily accessible, you might find that it also comes with a pretty high interest rate.
For this reason, it is a wise idea to consider a hard money option if you are planning to finance on a short term basis as it is an excellent short term financing tool.
If you are in a bind and need emergency money immediately, receiving a hard money loan sounds ideal.
Even though there are usually high interest rates attached to such loans, you generally have the option of refinancing the property at a better interest rate.
The criteria for being accept for this type of loan is based on the collateral, the property being financed, instead of the actual financial strength of the one borrowing the money.
It is definitely the way to go if an investor has issues with his/her credit.
So who are these lenders and how does a potential investor contact them? Knowing where to look is the key and there are a variety of places to look and plenty of avenues to take when seeking financing through hard money lenders, also known as "equity" lenders.
These lenders are individuals and companies that basically ask themselves if they as the lender would be willing to own the actual property for the amount of money they are will to lend.
The amount of the loan is typically based on a seventy five percent loan-to-value ratio and is more concerned with the appraised value of the property and the purchase price.
Investing in homes being sold at auction is an excellent idea as homes purchased this way are usually bought way below market value.
This allows the investor the ability to negotiate an even better loan amount with their lender.
As much as an eighty five percent loan-to-purchase ratio is factored in is not unheard of.
Consulting newspapers and scouring advertisements highlighting keywords such as "money to loan" is one way to connect with a potential lender.
The internet is also a great resource to consult.
Search engines such as Yahoo and Google offer a wealth of information as they feature a variety of hard money lender websites.
Searching for "equity based lenders" is also a good idea as they many times referrals from other local real estate investors.
Visiting a real estate investor based club, such as the National Real Estate Investors Association, is yet another way to network and connect with a lender online.
Simply typing www.
nationalreia.
com, gives you access to an abundance of information.
Another option to consider when searching for a hard money loan, "looking in your own backyard," so to speak.
Personal friends and family members may want to be a part of your investment and have to funds to make it happen.
On the downside, they will probably feel that they have more of a vested interest than a lender who is not personally acquainted with the borrower.
A close friend or relative may feel they should have the right to be a part of the decision making process or become more emotional about the whole deal.
If having a family member or friend interfering in your business endeavors is predicted to be a problem, opt to borrow from an institutional lender that has not connection to you on a personal level.
In comparison to hard money lenders, private money lenders make their own money available to lend in order to earn interest on the loan.
They are more anxious to lend money on a long term basis, as they would be in their own best interest from a profit standpoint.
Private money lenders usually have their own criteria on who would or would not be an eligible borrower.
They typically charge an appropriate interest rate which is based on their risk factor as the lender.
Some companies will lend to you based on your portfolio holdings.
In return, these investment firms secure your assets.
The good thing about receiving financing from such firms is that rules are more flexible.
On the negative side, your assets may not be readily available to you if you need them in an emergency.
But before soliciting money from a private investor, knowing the legalities involved is of the utmost importance.
Being unaware of the federal securities and laws that apply when to public solicitations of money as a public offering could be detrimental.
Running ads seeking private money may lead to receiving a call from the state Attorney General's office if there are specific restrictions regarding doing so in your state are overlooked or unknown to you.
Other state regulations, know as "Blue Sky Laws," may also apply.
These laws were put into effect in order to protect investors against fraudulent sales, practices, and activities.
They also regulate the offering and sale of securities to protect the public from fraud.
Although the specifics vary from state, they all require the registration of all securities offerings and sales, as well as all brokerage firms.
In addition, they offer information on licensed brokerage firms, brokers, and investment advisor representatives.
Seeking the advice of an attorney regarding federal and state regulations and securities when dealing with strangers, multiple parties, and just public at large is always a good idea.
Once you have considered all of your options as well as the pros and cons of both private and hard money loans, and have decided which route to take, there only thing left to do is get out there and invest!
For example, would it be in your best interest to enlist the assistance of a hard money lender or would it be better to use the resources of a private money lender.
There are pros and cons to both methods of financing, and after you have weighed both, selecting what works best for you should be much easier.
Hard money lenders include small companies and individual investors, and are a good source of quick cash.
Although the money is readily available and easily accessible, you might find that it also comes with a pretty high interest rate.
For this reason, it is a wise idea to consider a hard money option if you are planning to finance on a short term basis as it is an excellent short term financing tool.
If you are in a bind and need emergency money immediately, receiving a hard money loan sounds ideal.
Even though there are usually high interest rates attached to such loans, you generally have the option of refinancing the property at a better interest rate.
The criteria for being accept for this type of loan is based on the collateral, the property being financed, instead of the actual financial strength of the one borrowing the money.
It is definitely the way to go if an investor has issues with his/her credit.
So who are these lenders and how does a potential investor contact them? Knowing where to look is the key and there are a variety of places to look and plenty of avenues to take when seeking financing through hard money lenders, also known as "equity" lenders.
These lenders are individuals and companies that basically ask themselves if they as the lender would be willing to own the actual property for the amount of money they are will to lend.
The amount of the loan is typically based on a seventy five percent loan-to-value ratio and is more concerned with the appraised value of the property and the purchase price.
Investing in homes being sold at auction is an excellent idea as homes purchased this way are usually bought way below market value.
This allows the investor the ability to negotiate an even better loan amount with their lender.
As much as an eighty five percent loan-to-purchase ratio is factored in is not unheard of.
Consulting newspapers and scouring advertisements highlighting keywords such as "money to loan" is one way to connect with a potential lender.
The internet is also a great resource to consult.
Search engines such as Yahoo and Google offer a wealth of information as they feature a variety of hard money lender websites.
Searching for "equity based lenders" is also a good idea as they many times referrals from other local real estate investors.
Visiting a real estate investor based club, such as the National Real Estate Investors Association, is yet another way to network and connect with a lender online.
Simply typing www.
nationalreia.
com, gives you access to an abundance of information.
Another option to consider when searching for a hard money loan, "looking in your own backyard," so to speak.
Personal friends and family members may want to be a part of your investment and have to funds to make it happen.
On the downside, they will probably feel that they have more of a vested interest than a lender who is not personally acquainted with the borrower.
A close friend or relative may feel they should have the right to be a part of the decision making process or become more emotional about the whole deal.
If having a family member or friend interfering in your business endeavors is predicted to be a problem, opt to borrow from an institutional lender that has not connection to you on a personal level.
In comparison to hard money lenders, private money lenders make their own money available to lend in order to earn interest on the loan.
They are more anxious to lend money on a long term basis, as they would be in their own best interest from a profit standpoint.
Private money lenders usually have their own criteria on who would or would not be an eligible borrower.
They typically charge an appropriate interest rate which is based on their risk factor as the lender.
Some companies will lend to you based on your portfolio holdings.
In return, these investment firms secure your assets.
The good thing about receiving financing from such firms is that rules are more flexible.
On the negative side, your assets may not be readily available to you if you need them in an emergency.
But before soliciting money from a private investor, knowing the legalities involved is of the utmost importance.
Being unaware of the federal securities and laws that apply when to public solicitations of money as a public offering could be detrimental.
Running ads seeking private money may lead to receiving a call from the state Attorney General's office if there are specific restrictions regarding doing so in your state are overlooked or unknown to you.
Other state regulations, know as "Blue Sky Laws," may also apply.
These laws were put into effect in order to protect investors against fraudulent sales, practices, and activities.
They also regulate the offering and sale of securities to protect the public from fraud.
Although the specifics vary from state, they all require the registration of all securities offerings and sales, as well as all brokerage firms.
In addition, they offer information on licensed brokerage firms, brokers, and investment advisor representatives.
Seeking the advice of an attorney regarding federal and state regulations and securities when dealing with strangers, multiple parties, and just public at large is always a good idea.
Once you have considered all of your options as well as the pros and cons of both private and hard money loans, and have decided which route to take, there only thing left to do is get out there and invest!
