Do You Need Money for Financing Your Real Estate Deals?

Big Surprise!

With the Banks tightening guidelines and  requirements it has become very difficult to get conventional financing.

Have you heard of a  Private Money Loan?

A private money loan (not to be confused with a Hard Money Loan) is basically a loan made to a real estate investor that is secured by real estate. In other words a individual or even a company becomes the bank. A Hard Money Loan can be from the same sources but usually they are in the business full-time charge more and now days are have a-lot more guidelines and may ask you to sign personally. 

The first mortgage that secures your legal interest in the property thus securing your investment.  We are not talking about high Loan-To-Value (LTV) ratios the banks and savings and loan institutions make on homes (which is what got them in trouble. All of private money loans are negotiable, you and the Private Lenders decide what the LTV is. Typically the LTV is below 70% for the security of the loan.

As a standard, LTV ratios are under 70% of the value of the property securing the loan and frequently as low as 60% to 65%. This means additional security on the investment for the Private Money Lender so they are always in a good position.

For example,  It's probably safer now the prices have fallen so much. if we purchase a property that is valued today at $200,000, our Private Lender will loan at the most $140,000 dollars on the property.  That’s a 70% loan-to-value ratio.

The low LTV approach is very safe compared to that taken by conventional lenders who routinely lend 80-95% LTV, often leaving no wiggle room should the borrower default on making the payments.  This is part of the reason banks are struggling right now.

You, as a private lender, will never lend more than 70% LTV which is a very conservative number aimed at providing a cushion to work under. As a lender, it is in your best interest to minimize risk and maximize return and this is why a loan should never be made without a 25% safety net. We don’t violate this rule, because your security is at stake.

 Determine the value - Typically the value is determined with comparable sales, DOM (days on market)  and now how many in the area our foreclosures. A BPO (Broker Price Opinion)  may be ordered over an appraisal because it's cheaper and faster. It never hurts to get a second opinion.

If you would like more information along with some free tools to help you get started raising private money head over to www.investorsclassifieds.com/private-money