Lending to real estate developers provides the private lender with certain advantages that are not otherwise enjoyed by other means. Let us briefly discuss what Private Money Lending is before we get into the benefits. Private money lending in the real estate financing industry refers to the money lent to a real estate investor by a person, not a bank, in exchange for a pre-determined rate of return or other consideration. Why the private borrowings? Usually, banks do not lend to borrowers on assets needing renovation to reach market value or ‘after repair value’ (ARV). Savvy individuals with cash available in a broker account or self-directed IRA, know they can fill the banks’ vacuum and earn a better return than they can actually get in CD’s, shares, savings and money market accounts, or even the stock market. So a market was born, and real estate investors have become important to it.Checkout DFW Investor Lending for more info.
Terms are negotiable – with the borrower, the lender can discuss interest rates and future profit share. Interest and concept fees can also be negotiated in addition. Any arrangement that suits all parties is appropriate for a private loan.
Investment Return – Existing interest rates paid on private money loans are normally between 7% – 12%. These yields are actually higher than returns from CD’s, deposits and money market accounts as of April 2018. They also surpass the 4.7 percent generated by the stock market, inflation adjusted, since 1/1/2000. That is more than eighteen years.
Collateral given – The property of real estate acts as the loan collateral. At a large discount to the market, most real estate investors buy their assets. If the creditor default, this discount provides the lender with quality collateral.
Option – The Private Money Lender is able to choose who or what project to lend to. They may obtain comprehensive project details, the experience of investors, and the types of profits usually made.
No Effort – The lender is worried just about the loan. In order to find, buy, repair and sell the land, the investor takes all the other risks and does the job. The lender just takes up the interest.
Stability – Immobilization has ups and downs. Yet nowhere is its volatility as pronounced as the stock market. Additionally, the property offers a buffer against the ups and downs when bought at a proper discount.