“A bank is a place that will lend you money if you can prove that you don’t need it.” — Bob Hope
Private Money Lenders for Real Estate Investors
What’s great about that joke, coined by Bob Hope decades ago, is how true it was then and still is today. Many would ask, “Why is it great that banks deny homebuying capability to many first-time homebuyers?” The answer is it gives real estate investors an opportunity to lend private money on a secured loan to buy and/or remodel the properties for resale and get a better return on investment (ROI).
Any real estate investor can tell you private lenders are the reason they have many of the holdings or profits from sales in their portfolio. What this means is the lender is accepting the risk, but with a less liability. They should make sure they are lending their money to real estate investors who have a good eye for properties or projects that could turn into good investments. The following is a short look at some strategy tips for lenders for real estate investors.
Ensure the Investor/Contractor Has a Solid Track Record
When private lenders are working with real estate investors (these are often the contractors who will rehab the property), they want to make sure the real estate investors they are working with have a solid track record. Some questions the lenders for real estate investors want to ask are, do they have experience with real estate investing? Do they own the property, or will they own it outright after the bid? And do they have a backup plan in case the real estate deal does not garner a sale within the timeframe of the loan?
Lenders for real estate investors should know the basics of the deal involved in the investment and the potential for both loss and profit. The potential for loss is normally minimal because the property is the security and this how the investor/contractor makes a living. Some, however, do not do the rehabs personally. That is why they must ensure a clean title and competent contractors are handling the rehab.
Ensure the Property Has Potential
Lenders for real estate investors must thoroughly consider the appraisal for the completed remodel and the potential value versus investment dollars. This should be one of the first things lenders consider when dealing with a real estate investor.
Many of the factors banks and other lending institutions look at to determine credit-worthiness in the fix-and-flip industry are less significant to private investors. Income and credit scores are just not a good indicator in this industry. As stated above, the investor’s track record and record of repayment are much more important than their credit score.
If the property is not attractive or does not have the potential to realize at least a ten percent ROI, the lender should not consider the investment and just move on to another investment project. There are many factors to consider when talking about the potential of a piece of property. Things such as location, condition, and potential buyers should be considered.
There are many factors lenders for real estate investors must consider. The answer to a few questions will determine the property’s real potential, such as: How much will it cost to complete the repairs? How long will it take to complete the repairs? What is the time-frame of the loan? Most “hard money” loans are short-term, 4-6 months. Can the property be remodeled and sold before the term expires? If not, what is the backup plan?
Why Invest with Red Door Funding?
Red Door Funding, at (832) 539-1099, has been lending money to “fixer uppers” in the Houston area for more than a decade. They know which contractors or investors are making a profit and repaying their rehab loans. Private lenders for real estate investors can be as involved as they want to be, but most are passive investors who have the money to invest but not the time or inclination to get involved in real estate deals. If you’re ready to make 10-15% on your short-term money loans, talk to Red Door Funding today,
If you are considering investing in real estate “fix and flip” projects, contact the professional lenders at Red Door Funding to get answers to your questions. Send an email with your questions, dwilliams@reddoorfunding.com.