What is “Private Money” and how is it different from Hard Money?
Private Money is the term used when private investors invest either individually or in a group and in this case it is related to real estate investing. Hard Money on the other hand is actually private money from private investors that is placed through a Hard Money Broker. Private Money is usually considered quite a bit more flexible because the Private Money Lender is usually more hands-on than if the money is being placed through a Hard Money Broker. Private Money can be a good alternative to commercial bank lending in overcoming various hurdles such as timing, deal complication and risk. Private money lenders can step in to provide funds where conventional lenders cannot.
Why use a Private money lender?
Private Money rates and fees are typically higher than conventional lenders, so it is important to use Private Money correctly. Private Money is meant to be used for short term financing. The typical Private Money loan term is just 6 to 9 months.
What are the advantages of using Private money?
There are many advantages to using Private Money including, but not limited to:
Quick underwriting – We can analyze a transaction and issue a loan commitment in a matter of days, instead of up to several weeks with a conventional lender.
Flexible programs – You can use the equity that you have accumulated in other real estate to help you purchase and renovate your next project instead of sourcing large amounts of your own cash.
Experienced Real Estate Lending professionals – We have been in the Private Lending field for over 30 years. We will help guide you through the process and avoid potential pitfalls.
Access to capital especially after the collapse of the sub-prime market. Conventional banks have restricted their lending making it difficult or even impossible to secure the extra funding you need to meet your goals. We are asset-based lenders who are focused on the real estate and the viability of your project as opposed to placing more importance on credit scores.
Industry contacts – As long-time investors we have many industry contacts to help you along the way. We have pre-approved general contractors, relationships with conventional lenders to help you re-finance. We can recommend real estate agents to help you maximize the value of your investment and avoid hazards along the way.
What is the minimum credit score you will accept?
Our standard loan applications do not have a minimum credit score. However, various factors including credit score, overall financial strength, and ability to pay back the loan will factor into the maximum LTV, down payment, points, and interest rate.
In what areas do you lend?
Our primary focus is Washington and Michigan. We do however finance in other parts of the country depending on the situation and deal.
What types of properties will you lend on?
We currently focus on 1 to 4 unit residential homes, multifamily, rehab projects and some construction completion.
Do you offer loans for clients looking to buy, fix and flip? Yes. We finance up to 100% of the purchase price and we can even provide additional funds for the rehab costs, assuming we have enough property collateral (this could include other properties that may be cross collateralized.)
How many points for your Purchase and Rehab loan and what would the interest rate be?
Typically points will be 4 to 6 points and interest 12% – 14%. Completing more projects with us will establish a successful track record, which then will qualify you for preferred rates.
Is there any Prepayment Penalty with the Loan program?
Is an appraisal required?
Typically, yes. In the case of substantial equity, though, the appraisal requirement may be waived.
What if I have already had an appraisal done?
We will always take the time to review an existing appraisal.
Do I need to have a property under contract before applying for a loan?
You can be pre-approved for our loan program prior to placing a property under contract.
What if I have bad credit?
Credit may not be an issue, but having a sensible plan on how you will repay the loan is definitely required. Our funding criteria are based on equity in the property, not credit.
What if I have no credit?
We also make loans to corporations and entities with no credit history.
What is your maximum loan to value (LTV)?
Generally we can lend up to 65% of After Repair Value.
Will you ever go higher on LTV than 65%?
If you have additional Real Estate collateral, please call us to discuss all your options.
Why do you give a range on your interest and loan origination fees?
Each transaction and degree of risk is different. Once we evaluate the transaction, we will provide you with a firm quote in writing.
What is “Shared Appreciation”?
Our goal is to bring in most or sometimes all of the purchase and rehab money, assuming the values are strong, and we then split the profits after all expenses. If you as the borrower bring in money to the deal, you will be credited the same interest rate on your funds invested.
How do you underwrite deals?
While underwriting is based on many factors and can vary on a case-by-case basis, our general criteria include the following:
Financially Successful Project – The bottom line is, we want you to make money on the deal. If the numbers make sense, we’ll lend you the money. If we don’t feel we can be of help, we will give you a timely answer so we don’t hold up your project.
“Skin in the Game” – though we are eager to work with you and be a financial “partner” on your real estate investments, we need to know that we are all motivated to see the project through completion. We expect our Borrowers to either put up a percentage of the total deal costs, or to post additional collateral as a substitute. One of our competitive advantages is our ability to use existing equity in a borrower’s collateral so that they don’t have to come to the table with large amounts of cash.
Exit Strategy – It is imperative you have a sensible plan of how to repay your loan. We need to be assured that you have two exit strategies.