Private Lenders for Real Estate Investment Loans
Real estate investment loans often requires non-traditional methods of financing. If you plan to buy and sell real estate as an investment property, this is the most important thing to learn. Investors should be clear that real estate investment financing is different from buying a home for which to live. A typical home buyer will secure a mortgage from a traditional bank or mortgage lending institution. They will use the funds to pay for the homes purchase price using a combination of borrowed funds along with a down-payment from their savings.
Investors, on the other hand, are more likely to use alternative strategies for financing. The reason for this is because of government restrictions placed on lenders. These restrictions have made securing funds for investing in real estate much more challenging. Because we live in a country anchored in a free market economy, our marketplace has come to a balance.
Investors can now reach beyond standard banking methods to acquire the real estate investment financing they need from private lenders. Borrowing money from an excellent private lender is the single most important source for the funds required to grow a real estate investment portfolio or refinance investment property.
Private lending works much in the same way as borrowing money from a traditional bank or mortgage broker. However, in the case of a private lender, the money comes from a private individual or company. Private lenders have less stringent lending criteria and base loans on equity by securing a Mortgage in exchange for loaning you money for your deal.
Private lenders are often used to finance unconventional projects. These are often great deals, and the money is needed quickly, or the property may be lost. Private lenders will typically lend up to 70% of the value of the property regardless of the sales price and can close loans in a couple of weeks or even sooner.
Private lenders often look past credit scores and income for real estate investment loans. However, a business plan and exit strategy for the project may be required. Their compensation for funding your loan will be via points (a percentage) of the total amount borrowed and a higher interest rate that will likely be 10% or higher. However, these numbers are not at all set in stone. Interest and points will vary based on the overall size of a project and the terms of the loan. Private lenders typically require their real estate investment financing mortgage to be the first position on the property.
Beware, There Are Sharks in the Water
You should beware of lenders that do not care about your exit plan. Good lenders care about how you get in as well as out of any deal. Meaning, they want you to be successful and to either sell, refinance or otherwise hold the property on agreed to terms.
These are some clues that you have found a disreputable lender. Beyond the lack of concern for your exit plan, be cautious of lenders who offer a higher loan to value, no up-front fees, and aggressively lending on a deal where the investor may struggle to be successful.
This last example, knowing if an investor can be successful, is harder to identify for new investors. However, like anything else in life, if you, as an investor, think a deal is too good, it probably is. Keep in mind that there is a vast difference between a great and eager private lender and a predatory lender. They may be hard to discern because they seem similar without any other frame of reference. Use your instincts; a suitable lender has likely been around for a long time and has hundreds of clients. Ask for multiple references, do your due diligence, check online reviews.
Unfortunately, many of these disreputable lenders do this because they want the property for themselves. They do not care if the borrower can make their payments and will allow the borrower to miss a couple of payments. Once this occurs, they quickly file foreclosure proceedings and subsequently add the property to their portfolio.
Lease Options are made up of two parts and can be occasionally used as a real estate investment financing option. The first part is a lease or rental agreement. The second is the option to buy a property. These deals are rare in the market today. The contract is a typical rental agreement between the owner and the lessee. These types of leases will often be a triple net lease, whereas the lessee is responsible for paying the property taxes and insurance and well as maintenance and upkeep of the property. The lease contract may require a higher payment than a standard rent agreement might be for the same property. Depending on the terms of the lease, the lessee may be able to take advantage of the tax benefits associated with being a homeowner. These types of deals may happen where an owner cannot sell the property for some reason but is also not able to manage the property. These arrangements allow someone else to take over management while recognizing profits based on a fixed lease cost.
Seller financing refers to a couple of different actions. In one, the seller can act as the bank. Rather than receiving full payment at closing, they lend all or part of their equity to the buyer. In exchange, the seller will receive future or regular payments as agreed. The loan terms may be set as interest only, principal only, or as a combination. Additionally, the loan may carry a fixed interest rate or a variable rate. The terms will vary depending on the contract between the buyer and seller.
The second is when a buyer assumes the current loan from the seller. Assumed loans typically come in two flavors. The first is a lender approved assumption. In this case, the lender formally approves for the buyer to take over the loan from the seller. These loan assumptions usually require the buyer to obtain credit approval from the lender and may require loan term modifications. The other method is referred to as Subject to Assumption. In this case, the buyer purchases the property subject to the existing financing. The lender is not contacted or involved, which can make these types of assumptions financially risky in many ways. For example, the loan may have an acceleration clause, which may permit the lender to call the loan early if the owner transfers the property outside of the lenders contractually agreed to methods. The lender will not likely do this if regular payments made. However, it can happen, forcing a sale or other means of recourse.
Choose Abbey Mortgage as Your Private Lender and You Win
If you are a seasoned investor, or you are just looking to get into investing, you need a private lender you can trust. Securing your real estate investment loans from a company like Abbey Mortgage and Investments is a great start. We have clients who have funded hundreds of properties by borrowing money from us. We have been serving Colorado borrowers for over 30 years and we plan on doing so for many more. We have a keen interest in supporting investors with many different investments including fix and flips/fixer-uppers, fix and hold properties to rent, rehabilitation, new construction, commercial properties, and single/multi-family rental property purchases. Abbey Mortgage is a reliable and trustworthy private lender who is on your side. We offer a no-cost deal evaluation and we always give free advice. Call us today!