Neophyte Real Estate Investors Love Private Money

Those who are just beginning in the real estate industry consider private money a bliss

. Those who have limited information on this kind of financing, however, beg to differ. But what is it with private money that makes real estate investors just opt for it despite its reputation as a last resort loan? First off, lets list down some items that gave it such wicked image.

Also known as hard money, this kind of financing uses interest rates that can reach up to 20%. This rate is twice as high compared to those used by banks, credit unions, and other traditional lenders. Another negative characteristic of this kind of financing is the usage of property as collateral. If you fail to repay the loan you used to buy the property, lenders will repossess that house. Before you think ill of private money lenders, let us now examine why they use such interest rates and terms.

This kind of financing is also known as hard money because its terms need to be followed strictly. If banks and other lenders that offer soft money loans will allow the modification of terms, that is unlikely to happen with private money lenders. These people are basically individuals with money so it is but natural that they will try to protect their capital. That is their main concern and that is why they seek to use the property in question as collateral.

The high interest also serves the same purpose. It is used by lenders to make up for their losses. Take note that they are more at risk of sustaining losses, especially from defaults. This is because they lend money even to those with poor credit scores. This is also first reason whyreal estate investors love hard money: They can tap hard money even when their current income seems insufficient to repay the loan. This is not possible with traditional lenders, which assess borrowers based on their credit scores and proofs of income.

Because hard money lenders do not check so many documents, they are able to process loan applications faster. They can release the money is as short as two days. That also allows real estate investors to outfox competition. This is the third advantage of this kind of financing.

Private money still has many sweet benefits neophyte real estate investors just cant get enough of. Want to know more? Go to Rehablist.com today and get ready to be surprised.

by: Daniel Mc Grey

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