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Finding a private money lender that is compatible with you and your needs is as important as the investment itself. Paying too much or for too long a term could cut into your profit margin and turn a good investment into a “money pit.” The amount you borrow and the terms of the loan should match your renovation needs and exit strategy to ensure a successful and profitable project.

It could be a huge mistake for an investor to accept too large a loan or get locked into a long-term loan that carries a penalty for early repayment. A loan from a private money lender usually has a higher interest rate than a traditional loan, but for a shorter period, which costs much less. Balancing each side of the financial equation is imperative; borrowing the right amount, for the right length of time, at the right cost, will help you balance each side of the financial equation and ensure that you come out of the deal a winner. Therefore, you should find a private money lender that is compatible with your goals.

Learn About Private Money Lenders First

You may wonder who these private money lenders are. Private lenders could be anyone interested in lending you the money you need to purchase and upgrade a residential or commercial property. This is usually for a period long enough to upgrade a depressed property for resale, to get a long-term mortgage from a traditional lender that requires the repairs, or as a long-term investment property.

These lenders, often referred to as “hard money” lenders, could be an individual such as a family member, friend, business associate, or an investor or group of investors looking for a good return on their money. A private money lender typically does not have an affiliation with a government agency or traditional banking institution; therefore, they are not restricted by banking regulations, credit scores, or debt-to-income ratios. Most accept the property as collateral to secure the loan and lend a percentage of the after-repair value (ARV) for a specific, short-term timeframe to make the necessary improvements.

That is why it is crucial to establish the total amount necessary for purchase and/or repair, and an exit strategy before searching for a lender compatible with your objectives.

Determine and Discuss Your Goals with the Private Money Lender

You need to have a specific goal for the property you intend to purchase or refurbish. How much will the expected repairs cost? Of course, you should leave yourself a little leeway in case of unforeseen issues, which always seem to turn up with older residential and commercial properties. The same is true for the renovation timeframe. A termite infestation or discovery of lead paint could set your project’s timetable back a week or more to resolve.

Most private money lenders are not interested in taking possession of the property, but they do want to know your exit strategy. Whether you plan to resell or refinance, you should establish a clear path to repay to ensure the establishment of an excellent financial relationship with the lender in case you need more financing in the future.

Build Stable Relationships

It’s not only important to build a solid relationship with your private money lender, but also other players in the real estate investment community. Prompt repayment of loans, credit used for housing materials, and wages to employees will put you on firm footing for future endeavors. The real estate investment industry is a small community in the Houston area, and establishing a solid reputation with everyone concerned will make it easier to prosper in that environment.

Get to know the professionals in the industry such as lenders, attorneys, real estate agents, suppliers, and contractors/sub-contractors so that you will know where to turn when you need assistance. Your word is your bond and repaying on time will ensure you have access to investors and suppliers.

Red Door Funding–A Reputable & Reliable Private Money Lender in Houston

Finding a compatible private money lender is essential to your success in the real estate investment industry. Therefore, you should consider establishing a relationship with Red Door Funding for your property investment financial needs.

In the Houston area, Red Door Funding is a reputable and reliable source of funding for purchasing or refurbishing residential or commercial property. Red Door Funding not only lends money to real estate investors, but partners with other investors in the Houston area to help them realize a better return on investment with their money. When you need funding, simply complete the credit application here. Or, if you are looking for a safe place to put your money for higher returns, send us an email at dwilliams@reddoorfunding.com, or give us a call at (832) 539-1099.