So, you’ve decided to get into the investment property game - that’s great. Whether you’re planning to flip some single-family homes or invest in a multi-family property as a landlord, the first step is to figure out how you’ll be financing your project. After all, without a clear idea of where your funding will be coming from you won’t be prepared to make an offer on the property in the first place.
Investing in real estate tends to follow a different path than purchasing your own primary residence. Investors tend to use private money lenders because it affords them more flexibility in the process and also allows them to build a business relationship that, as time goes on and their property portfolio grows, only becomes more advantageous to both sides. But choosing the right lender can be tricky - if you’re hoping for your deals to move swiftly and seamlessly, you’ll want to do your due diligence and select the right lender.
Below, we’ll examine three things to look for in a good private money lender (and one thing to watch out for).
One of the benefits of working with private money lenders over a traditional bank or finance company is that deals can typically be closed much more quickly - typically in a matter of days rather than weeks or months. For this reason, the lender you’re working with needs to be responsive - if you’ve found the perfect property you don’t want to jeopardize it by working with a lender that takes far too long to respond.
Throughout any transaction you’ll want to be certain that you know what’s going on every step of the way. A reputable lender will make sure that you are kept thoroughly informed, and will also adhere to the various regulations and guidelines set forth by your state/local government regarding the loan origination process.
3. Competitive Rates and Points
Of course, while shopping for a lender - whether it’s for traditional financing or a private lender - one of the most important things to look for is the interest rates and any points associated that will be a part of the terms of your loan. That said, it’s also important to know what you’re looking at: interest rates and points for a single-family home mortgage through a traditional lender are typically going to be much lower than the rates available through private money lenders. That’s because traditional mortgages are granted with the expectation of a long-term investment, whereas lenders know that they’re usually dealing with investments and fix-and-flip properties. Don’t compare the rates of a private money lender to the rates of a large national bank, that’s comparing apples and oranges. Compare apples to apples and see what various lenders of similar type and size are offering for your project.
It’s also important to consider the amount of funding you’ll have to put forward. Down payments and certain fees are standard across the industry, but don’t be swindled by a company that expects you to put down large “engagement fees” in addition to the standard fees.
Ready to take the next step and get your project off the ground - tell us about it!