As soon as I realized that my personal financial picture was a little bleak, I started thinking about taking out a personal loan. I wasn't really looking forward to going into debt, but I knew that if I wanted to solve a few short-term problems, a loan would be the way to go. I talked with a few of my local financial institutions to get a good idea of what they could offer me, and then I sat down to go over the paperwork. It was incredible to see how much money I could save by securing a lower interest rate. Check out my blog for more information about loans.
When we picture the process of purchasing real estate, we tend to think of going to the bank for money first. A private money real estate broker, however, represents a potential alternative to working through the banking system. It's wise, though, to develop an appreciation for how the process works and what its strengths and pitfalls are.
What Is a Private Money Real Estate Broker?
The best way to think of this type of broker is as an enhanced version of a real estate agent. Where a real estate agent will simply bring you together with a property and point you toward a lender, a private money real estate broker has relationships with less traditional sources of money. These can include individual investors, capital groups, investment firms, and other entities that function outside the banking system.
A Different Decision-Making Process
Depending on the configuration of the entity that'll be acting as the private money real estate lender in a proposed deal, the decision-making process can end up being radically different than when you work with a bank. For example, if you're talking with an individual investor about a deal, you may get a quickly made gut decision about the proposal. While investment groups and private equity firms will likely have more involved processes, they're still going to handle things differently from how a bank would.
Higher Risk Profile
One major advantage to this approach is when you're looking for money for a project or deal that might be seen as risky. Every bank has a limit to how far it'll extend credit into risky ventures. Private capital has a lot more room to take chances. Just be aware that the private money real estate lender will likely expect a commensurate return relative to the risk they'll be accepting.
Licensing Rules
Private lending rules vary significantly among the various U.S. states. In some states, a private money real estate lender will have to be incorporated as some type of financial institution and may even have to be licensed. Other states pretty much welcome investors to take their shots on deals.
Hard Money
A significant benefit of working with a private lender is that there's a good chance you'll be able to put hard money into a deal quickly. Loans from banks take time, while capital investment groups have pools of liquidity ready to be put to use as opportunities come along.
For more information, reach out to a private money real estate broker in your area.
Share29 December 2018
