Private Money is your friend...NOT your enemy!

Firstly, in the spirit of full disclosure, I am a Private Money Lender. I decided to write this blog in an effort to bring some level of education and understanding to this topic, for those people that may be looking for that. I am also interested in helping others to achieve their goals when it comes to real estate investments. I have been an investor myself since buying my first home in 1980. I have owned lots of properties since that time and I have been employed in the banking and finance industry since 1986 in some manner, shape, or form. For the last 16 + years, I have been a Mortgage Broker, Mortgage Banker and Private Money Lender.

I believe there is a great deal of misconception about what role a Private Money Lender plays and I also believe more people should use this avenue as a primary source for their real estate investment capital. In the simplest of terms, it’s the classic case of “OPM.” OPM = Other People’s Money and most of us have heard more times than we can remember that one should always use OPM to make Real Estate investments when possible. Doing so, does not come without costs, however, these costs are proportional to the benefit one may derive from using OPM. So, let’s look at some “Myth’s About Money.”

Myth # 1: “Private Money is too expensive!” No, SOME private money is too expensive. Additionally, using private money without making sure that you are recovering the costs of that capital in your investment is where most people hurt themselves. Money is no different than any other “thing” you buy for use in your business. In the case of the Real Estate Investor, money borrowed, is used to buy property, in which we hope to earn a return (in up to 5 different ways) and so the cost of the money borrowed is just another “operating cost” of our business.

Myth # 2: “Private Money Lenders want me to default on my loan so they can take my property!” Not true. If we wanted property, we would just buy it to begin with. We make money with money…you make money with properties. Together, we both make money. Classic win/win. What a Private Money Lender really wants is for you to borrow our money, achieve your goals with it, pay us back on time with interest and then do it again…and again…and again.

Myth # 3: “My bank can do a better job for me than a Private Lender can!” Well, that depends on what makes you happy and how much time you want to spend getting the money you need. In today’s lending environment, bank loans are a very frustrating process…even when they go as planned. The Dodd-Frank Mortgage Reform legislation has inundated the lending industry with layers and layers of additional regulations and guidelines that quite frankly, have made it a complete mess for both the lenders and the borrowers. Qualifying for a loan today is tough. Borrowers that 7-8 years ago would sail through the lending process, now are finding the process somewhat like being drug through a knot hole. In the real estate investment world, nothing is truer than “time is money.” Being able to move quickly and fund quickly and turn your money over quickly is the key. Private Lenders have the ability to fund a loan for a borrower in 4-10 days. That’s a far cry from the 30-45 days average for a conventional lender today. (After October 3, 2015…this will be even longer when the next major changes to the conventional lending regulations take place.)

If you are a real estate investor…I encourage you to consider using Private Money funding as an option to your own cash or other means for acquiring your properties and/or paying for the costs for rehabbing them (if applicable to your business model.) If I can answer any specific questions anyone has about this process, feel free to reach out to me.