Real estate investing is a popular choice for people looking for investments to help make them money over time. Whether you decide to invest in some Denver neighborhoods (like here) or in the suburbs of Atlanta, there is potential money to be made everywhere if you can find the right property. However, in order to start out with real estate investing, you will need some starting capital.
While many people borrow money from a bank or credit union, this isn’t always possible. This could be because they don’t qualify, or the process of getting the funds simply doesn’t work with the timeline they have set for themselves. Thankfully, these borrowers have a few options in addition to the bank, one of which is using private money for the investment.
What is Private Money Investing?
Simply put, private money investing is when a real estate investor will use funding from other investors to fund their investments. These can be in the form of an individual, a group of successful investors or even a company. So, instead of going to a bank, you will reach out to these private money lenders to acquire the money you need to buy, fix, rent out or sell properties.
This type of investment gives the lenders the same upside and some passive income, without having to actively purchase and fix up a home themselves. While these can often come with higher interest rates, they are sometimes the only option a person has if banks have denied them, and have several other potential benefits (more on those later).
Benefits of Using a Private Investor?
So now that you know what private money investing is, what are the benefits of using a private investor? First of all, these are generally easier to get than loans from the bank. Private money lenders will generally be more open to working with a greater number of people, though they will still want to know how risky of a borrower you are.
The speed at which these loans can get acquired is also a major benefit of using private money. Whereas the bank might take multiple months to get you the money you need, many private lenders can get you funding in as little as a week.
This is very important as many real estate investment deals come out of nowhere, and can disappear just as quickly. If someone else is able to get their funding more quickly than you can, they could walk away with a deal that you wanted.
These loans often have a shorter term than ones from the bank as well. While this can sometimes mean slightly higher payments, it often means the effects of compounding interest won’t be as great, and this can reduce the risk of getting late penalties in some cases.
Also, these private money loans are more flexible. Many banks won’t lend to purchase homes that are in bad shape or are currently being built, while many private lenders would have no issues with it.
These can even be flexible in how they are paid back. While many will want a monthly payment with interest like a standard loan, some may also decide to enter a joint venture, or use an exit fee. Of course, if you ever decide to use a private money loan to help your real estate investing business, be sure you know the repayment type and terms ahead of time.
In conclusion, we hope this blog post has been able to help you learn more about private money investing. Private investing can provide many benefits to new or experienced real estate investors who are looking for quick and easy funding for their next investment.