Real estate investing is one of the most common uses of Private money funds. Real estate investing is a cash intensive financial activity. In order to take advantage of ongoing projects, investors often require more operating capital than conventional banks are prepared to provide on short notice.
When conventional financing takes too long or is not available due to low Beacon scores or some other reason, hard money can be a deal saver. If you invest in a lot of property, your Beacon score can plummet simply due to the number of mortgages you owe! Alternatively, the properties that can be had for an advantageous price may not meet conventional banking criteria. In either case, hard money lenders are not restricted in the same way that conventional banks are and
Private money lenders can turn on a dime. Mortgages for real estate investing can take anywhere from two to six months to be completed by conventional banks and lenders. Private money lenders can generally fund in two weeks from the time you have all the paperwork in place.
Lenders can also fund projects that conventional banks cannot. If your real estate investing takes you to the realm of dry cleaners (or a strip mall that has one), gas stations, or even assisted living facilities (one of the hottest growing real estate markets in the Canada), conventional banks are not likely to be able to fund your project. Hard money loans can, once again, be a deal saver.
Plan to use hard money as a short term loan. Terms generally range from one to three years. This should provide ample time to prepare the property or your personal financial status to arrange for long term conventional financing or to arrange for the sale of the property in question.
I personally use Private money for my Flip projects as well as my buy Fix and Hold Properties. I purchase an income property with private money that needs repair. I repair the building, put new, great tenants in, then refinance with a conventional lender. Many times this actually allows me to pull out my original Downpayment and renovation costs if I choose.
Private money has much higher interest rates than conventional loans, but with the right application they can help investor purchase and profit from deals that banks may not touch
David Giovanniello is the Author of the book: "The Warren Buffett Approach to Sell Real Estate and also Founder & Host of North London Advice Givers™ Podcast and Editor-in-Chief of North London Advice Givers™ Magazine—a monthly print-publication, featuring London experts, entrepreneurs and thought-leaders. He is also, CEO of North London's Teacher Only Program® and is a licensed real estate agent with Century 21 First Canadian Corp. Brokerage. David has been called "provocative and entertaining," but also, "a committed philanthropist." He is praised for his Mission to raise/donate over $10,000 to local and Teacher-related charities each year. David also supports many great national charities too, such as: United Way London & Middlesex, Muscular Dystrophy, Canadian Red Cross, MADD: Mothers Against Drunk Driving, Jr. Mustangs Hockey Team Sponsor. Plus, with his "Free Book 4 Charity" campaign, he hopes to raise another $25,000 annually from the $5 (minimum) donations, of paying it forward., visit: www.mybook4charity.com