Why People Borrow From Private Lenders ?

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Written By Tony Dhami
Verico Designer Mortgage

Every day more people are bypassing the traditional lending routes and turning to private lenders to finance their investments. It’s true, traditional government regulated lending typically offers lower interest rate (though the difference is negligible) the benefits of private lending often far outweigh the difference.

Traditional, government regulated, lending requires borrowers to meet minimum income requirements. Private lenders are not interested in your income; they’re interested in the return on investment. When you demonstrate the soundness of your investment, private lenders are happy to get you the money you need.

Likewise, private lenders are not interested in reporting your loan to the credit bureaus which means your credit rating is not affected by borrowing money from private lenders. This means you can invest in as many opportunities as you desire without a negative impact on your credit rating.

Most often, people borrow money from private lenders because they see the value of investing in real estate properties. With a traditional lender there are minimum property value requirements which must be met in order to borrow money for the down payment. This is not the case with private lenders. Regardless of the value of the property upon initial investment, the bottom line is a private investor’s primary concern is the return on their investment. This gives you, the borrower, the freedom to decide which properties make the most financial sense for you.

Along the same vein, private lenders do not require the property to meet minimum age requirements. This is important to borrowers interested in flipping a real estate property. The older homes, those in need of the most work, are typically the homes which provide the highest return on investment. Not having minimum age requirements frees a borrower to find those fantastic fixer uppers and make a ton of money.

Traditional lenders also have employment restrictions, down payment minimums to meet, and even have rigid guidelines when it comes to calculating monthly payments. Private lenders are willing to be creative when it comes to creating a lending package which works for you. This means down payments can be negotiated, or even eliminated. Payments and terms can be negotiated.

So the absence of rigid restrictions is clearly a huge benefit to borrowing from private lenders however the freedom to work with a lender to create a deal which works for you is clearly leaps and bounds above what you receive when dealing with a traditional lender.

The final benefit, and perhaps the one which makes the most difference to many investors, is the turn around time. Private lenders do not have the time consuming bureaucracy which stalls the lending process and can turn a simple transaction into a process which takes months. When you borrow money for a real estate investment, or any other investment, timing is critical. Private lending is fast. You get the money when you need it without the red tape and restrictions.

For more information on how to invest in real estate, even if you don’t have a ton of ready cash at your finger tips
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