Your Private Money Lending Questions Answered

Looking to get into real estate investing but don’t have thousands of dollars laying around? That’s okay! Lots of investors are in this boat, and of course the answer is to borrow the funds needed to make the purchase. But what happens when a traditional mortgage isn’t an option? Maybe your credit isn’t great, or maybe you’re not comfortable with some of the terms. Whatever the reason, one of the best alternatives in this scenario is to find a private money lender who can provide the cash you need to start investing.

But how do you get it? And who do you ask? And why should you even consider it? These are a few of the most common questions that come up when the topic turns to private loans. Today, I want to provide some answers.

1. Who should you ask?

You might be surprised to learn that you actually have a number of options out there. Some you may have explored already, but others you likely haven’t. A great place to start is friends and family. These are the people who know and trust you, and therefore may be more likely to lend the funds. There is one caveat, though. This can be a risky move. Relationships have been ruined because of deals gone sour, so be extremely sure that you are A) asking people who actually have the money, B) you have all the details ironed out in writing and approved by an attorney before anyone signs, and C) are willing to risk the relationship if things don’t go as planned.

If friends and family aren’t an option, another way to connect with potential lenders is through good old-fashioned networking. Start by getting involved with local real estate groups or clubs and attending conferences and workshops. Talk to people, get your name out there, and make your face a familiar one. You may be surprised at how many people are looking to partner with someone on a real estate deal.

1. How do you ask?

Simple. You just ask. Once you’ve connected with a person who you feel might be a good fit as a partner, broach the subject. The worst they can say is “no.” But if you’ve done your homework and identified this person as a good potential lender, then chances are they will be interested in discussing the matter and possibly forming an agreement. For new investors just starting out, it may feel a little awkward to ask for money like this. But this is something you’ll have to get over, because it’s just part of the deal with private loans. Be confident, have your plans laid out, and make sure that the person you’re asking is truly in a position to take on the role of lender.

1. What are the benefits of a private loan?

There are a surprising number of advantages that comes with a private money loan. For starters, your credit and financial situation are less of a determining factor in whether or not you get the funds. You don’t need to have perfect credit, nor do you need to supply a year’s worth of bank statement and pay stubs to your lender. Because of the more informal nature of this type of loan, there’s a lot less red tape to cut through. This also means that the terms can be hammered out and the funds provided a lot faster, so you can act on real estate deals quicker. Private loans also give you much more control over the borrowing terms. You and your lender set the terms, not a banking institution who has to abide by certain regulations and laws.

Private money loans are an excellent option for investors in need of capital. This less-traditional method of acquiring funds for investment comes with a lot of benefits that make it a worthy avenue to explore. While it’s not without its risks (all loans come with risks), it does offer unique advantages that can help put you firmly on the path to financial freedom through real estate investment.