Funding Deals With Private Money Financing

A lot of businessmen are wondering why private money financing continues to attract borrowers despite its reputation as a last resort

. This is especially true in real estate investing. House rehabbers, or those who repair properties before selling them, usually fund deals through this kind of financing. They even prefer it over loans issued by traditional lending institutions like banks.

Unknown to many, private money is actually friendly to rehabbers. They get more benefits by using this than securing loans from traditional lenders. Also known as hard money, this kind of financing now funds scores of rehabbing projects across the country every day.

The first thing rehabbers like about private money loans is that they are processed fast. If traditional lenders need at least 30 days to process you application, you wont have to wait that long to get cash from hard money lenders. That is because they can release money in a little as two days. A few days of processing is typical in this business.

This swiftness is helpful to rehabbers, who are facing stiff competition. If they dont get financing for a project fast, chances are competitors with ready will but that property. Hard money lenders understand this situation. They also know that they will not earn any money if the investor does not secure the property fast. That is why they release money fast; they dont want to miss a chance to make money. After all, these lenders are also capitalists. They are individuals who have extra money and are looking for profit opportunities.

Apart from the speed of processing, rehabbers also like using private money because it allows them to buy and repair a property without personal money. If they borrow money from traditional lenders, they will get enough cash to purchase the property. For repairs and other costs, they will have to shell out their own money. With hard money, they wont have to go through this. All of your expenses can be shouldered by one loan. It depends on the ARV, or the after repair value of the property. The amount you will get will be based on the ARV.

For example, you plan to repair a fixer upper home but do not have sufficient money to buy it. You apply for private money financing and indicate that you will buy a property that is, for instance, worth $50,000 in a bad condition. You will spend $15,000 on repairs and other expenses to raise its value to $95,000. That means you need at least $65,000 to proceed with the project. If the lender agrees to give you 65% of the ARV, then you no longer have a problem with the financing.

Found this interesting? Learn more about rehabbing at rehab-real-estate.com today!

by: Daniel Mc Grey

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