Buying property for private and residential purposes stands different from buying properties with the motive of investing and making high returns on commercial real estate transactions. So, if you’re an investor looking to invest in multiple properties and make a fortune, it is essential you understand how private loans work and how to find the right private money lenders to fund your deals.
Having a good deal of knowledge in private money lending is important because commercial real estate investing is so much about making the right choices and having the right private lenders alongside, to make huge success in the field. In other words, in the world of real estate investing, a private money lender is someone who can turn out to be a much-valued asset that will have a significant impact on the overall performance of your investments.
Who are Private Money Lenders?
Definition: Private Money Lender
A private money lender is a person who uses their capital for financing various investments, like real estate, and gains in the form of interest received on the loans.
Private money lenders could be a single person or a group of persons with the same goals and purposes of lending their joint savings to various investment projects and earn in the form of interests paid on these mortgages. These private hard money lenders are not affiliated to any traditional lending institutions and carry out their transactions and procedures directly with the borrower.
What makes private money lenders are a better option for commercial real estate investors?
The number one reason that makes private money lenders (as opposed to commercial real estate hard money lenders) are a go-to option for savvy commercial real estate investors is that they have different approval requirements and the approval of loan moves at a much faster pace than their traditional financing counterparts.
In most cases, if not all, private money lenders do not care about the credit score or the overall credit-worthiness of the borrower, as opposed to the mainstream lending institutions who require a credit score above 450 to 580 to process any loan request.
On the other hand, private money lenders look at the value of the property over the credit score. This is a huge plus for real estate investors who have a poor credit score but wants to be in the game of real estate investing, nonetheless.
The private money lenders are also a boon to people who are just starting with investing in commercial real estate and do not have any lending histories that might justify a good credit score. Therefore, private money lenders are a great go-to option not only for beginners or amateur investors but also for savvy commercial real estate investors.
Another adding factor to this would be the short time window within which the loans are processed when it comes to private money loan programs. This fast pace of nature is a great advantage and leverage for investors who are involved in flipping properties from time to time, where the period is of paramount importance.
That explains the importance and role of private money lenders in the world of commercial real estate investing. Here are the steps to find private commercial real estate lenders near you. Read on!
How to Find Private Money Lenders Near You?
How to Find Private Money Lenders Near You?
Understand the Working of Private Commercial Loan Lenders
Take up the time and do the in-depth research to understand how things work in the commercial real estate investing business.
Build Your Connections
Building a network with the professionals of the industry.
Prepare a Solid Pitch Showcasing the Your Portfolio
The next step would be to put together the information or materials you will be sharing with your lenders while making a pitch.
Choose your Private Commercial Real Estate lender
Private money lenders will be internally fighting amount themselves too if they find good scope in the deal you’re proposing.
To know more. read given below in details –
Step #1 – Know the in & out of private commercial real estate loans (Yes, it is super important!)
The first time finding the right private commercial real estate lender to fund your deals is to understand the real estate lingo. The real estate investing terms could be hard to understand and grasp especially if you’re a beginner. It could be confusing, and you’ll feel very unprepared when you talk about your deals with potential lenders if you haven’t done your homework or research.
So, the first step would be to immerse in the world of real estate and familiarize yourself with the terms used in commercial real estate investing. Understand the anatomy of private money loans.
Take it up as an assignment for yourself and look up all the relevant information and learn as much as you can about the terms, when they’re used, what are their implications, and everything else around it.
Some investors make the mistake of trusting an external party, say a dear friend or a relative, to take care of their real estate transactions but let us remind you that it is not the smartest thing to do.
You might end up in real trouble and losses later on. So, take up the time and do the in-depth research to understand how things work in the commercial real estate investing business. This helps you in making wiser decisions and firstly, to understand what your potential lenders are trying to communicate to you in the first place.
Step #2 – Build your connections
The next step after you’re well versed with the commercial real estate investing lingo is to work on building your contacts. Unlike procuring a loan from a bank or other financial institutions, private money lending is all about making strong connections and having strong relationships with the private money lenders.
You might want to consider building strong connections and relationships on two fronts here, first, building a network with the professionals of the industry including – commercial real estate agents, private investors, attorneys, title companies, fellow investors, hard money lenders, etc.
Secondly, build your connections with members outside your professional real estate investing scope, like friends and families. The latter is important because you will never truly know the kind of relationships that could come your way through friends and family.
Step #3 – Prepare a Solid Pitch Showcasing the Portfolio to present to the Private Money Lenders
The next step would be to put together the information or materials you will be sharing with your lenders while making a pitch. This should generally comprise an overview of the company, that is your education, your past experiences with real estate investing, your goals and purposes of real estate investing, your nature of work, and a short overview of your mentality towards commercial real estate investing.
This information is crucial for lenders to consider and they’ll base their decisions of whether or not to fund your deals based on this basic overview that gives them a brief picture of what they’d be getting themselves into if they chose to fund your deal.
The next set of things to involve in your pitch or presentation outlining the previous properties with which you have worked with. Including all relevant data, pictures and statistics will be tremendous and helps the lenders lay trust in what you’re saying.
You might not want to include all the small and big details of your previous properties, but you might want to showcase the successful ones. Remember that your goal here should be to help lenders trust in you and painting a brighter picture is thus very essential.
Step #4 – Choose your Private Commercial Real Estate lender
Finding the best private money lender to fund your deal might not be the most straightforward task in the beginning. You have to follow through with all the previous 3 steps to impress and be able to strike a potential deal with one of the lenders.
But one thing you need to make a note of here is that the relationship between a borrower and a lender is a two-way thing, and although on the surface, it appears that it is the borrower that needs to walk an extra mile, it is not always like that. Private money lenders will be internally fighting amount themselves too if they find good scope in the deal you’re proposing.
Additionally, they may try to paint a beautiful bright picture to convince you that he or she is the lender you need to choose, but you should instead be very picky about this. Remember to ask your potential private money lenders some basic fundamental questions before closing the deal with any one of them. Here’s a small list of questions you should ask your private money lender.
- What are their proposed loan term and the corresponding interest rates on loan?
- What is the time window within which you can expect your loan amount to be arranged?
- What is the experience of your private money lender in dealing with the real estate transactions? Who are their biggest clients?
- Can your private money lender help you also in advising about making some crucial decisions, over and above providing the loan?
• Does your private money lender want to offer you the loan based on the current value of the property or its after repair value?
• What are the fees you will be charged for processing your loan, from the time the process starts until the end?
Of course, there can be ten other questions you will be interested to know answers to. Jot them all down on a piece of paper and ensure you find all the answers and talk about all the possible concerns you might have.
Step # 5 – Make your pitch to your lender
Once you’ve finalized upon the lender you want to finance your deal from, the next step is to make the final pitch. Remember that making the closing pitch is less about numbers, statistics, and figures but more about the kind of rapport you build with your private money lender.
Both you and your lender must feel comfortable with each other, feel at ease about working with each other on a long term, and you must ensure that both of you are on the same side of the page.
Once you have every data in place, every concern or issue put out on the table, and are sure about the rapport; you can go ahead and talk the final terms to close the deal!