Private Lenders vs. Bank financing

[Ulric Donawa]

I notice many new and some not so new investors are looking for bank financing for their Fix & Flip and other deals. The fact is that there are many private Lenders looking to make deals. The time you spend trying to find that special Bank that will eventually say yes, after a long process, is typically not the time you have when you need to move quickly or have a limited time after signing a contract to get to the settlement table. Therefore, you should not be losing deals because you ran out of time or could not find a lender for a profitable deal. So what about the potentially higher cost of a private money deal? The interest rates and points are usually higher. You should shop around because there are varying degrees of "hard money" available for investors. The main similarity of Private Money lenders is that they will be more concerned about the value or ARV of the property than the credit score (the better the score usually the better the rate) or the outside income of the borrower. All that being said, the finance costs of any financed transaction are expenses that reduce your taxable income and a prudent investor should weigh the costs vs. the speed of doing a deal more quickly and therefore being able to do more deals in a year. These are business decisions and you should run the numbers and analyze your profit potential for doing multiple deals vs. trying to hit a home run on maybe one deal a year. However, if you already work with a Bank or Credit Union that funds some of your deals then by all means keep working with them. Just keep your options open.