You want to buy a house.
What’s the first thing you do?
Get Pre-Approved For A Mortgage?
NOPE! That’s the LAST thing you want to do.
Literally… if you have no other funding options, then go to the bank.
Most new real estate investors spend hours upon hours looking for their next deal, but very little time thinking about how they’re going to fund it. Going to the bank to fund your deals is going to get your nowhere, quick.
You can only get approved for so many mortgages before you’re maxed out and the bank quits lending to you. And then there’s that pesky little thing called TIME. It can take a bank between 30 and 45 days to get you closed on a new house. Not to mention all the unnecessary fees that a bank charges to loan you the money. That’s money you could be saving or putting into your next property rehab.
So if you’re not supposed to use the bank, and you don’t have millions just laying around waiting to buy investment properties with, then what are you supposed to do?
You need PRIVATE LENDERS.
You might not know this, but private lenders are everywhere. Seriously. I bet you would be surprised at how many people you probably know who are, or are considering being, private lenders.
People are barely making anything by parking their money in a bank savings account, so they’re looking to private lending as a more secure way to earn more interest on their money.
If you’re unsure about why private lenders are more beneficial to you as a real estate investor, then keep reading…
I already touched on the time issue above, but let me just reiterate - time is not on your side when real estate is involved.
The quicker you can get a deal done, the faster you can cash that check and move on to the next property. If you have to wait 30-45 days just for the bank to allow you to close on a mortgage before you can even touch the house, you’re going to be doing a lot of waiting and not enough flipping.
A private lender can typically close in 2-3 days which, many times, will result in a lower price because of the quick close. So now you’re saving money and buying properties cheaper. Win-Win!
ARV vs. CURRENT CONDITION
Do banks lend on the potential that a property has? NO WAY!
Banks appraise a property and will only lend up to what they deem the current value of the house to be. Period. End of story.
They don’t care who you are, what your plans are for the house, or that you will probably be able to sell it for double what you're buying it for and pay them off in 6 months to a year. They don’t care.
A private lender understands that they’re lending you money based on the After Repair Value and they will lend you money to buy the house AND fix it up.
They get it.
Have you ever secured a mortgage where the bank terms agreed to you paying them off when you sold the house? No chance.
The bank wants their mortgage payment on time, every month. No exceptions. Don’t pay them, they will take the house back. It’s as simple as that.
Private lenders will allow you to defer payments where interest can accrue but not compound. So instead of paying your private lender every month, you pay them back plus the interest that you owe them, at end of project. It’s simple and it’s easy and it just makes sense.
CREDIT vs. PROPERTY
Banks are credit driven. They check your credit before agreeing to give you a loan. They care less about the property and more about your credit history and ability to pay them back.
Private lenders are more property driven. They care more about who you are, the previous investments that you’ve done, and the property that they will be lending on.
Private lenders will also bring you more deals if they see a good one that they’re interested in. Banks will never do anything like that. You’re a file on their desk that they're working to close.
Now, I’m not faulting banks for any of this. Banks need to exist and they need to operate in the ways that they do. What I’m saying is that there’s a better option out there for real estate investors like you and me to get deals done.
Your next step should be to start recruiting private lenders if you haven’t done so already.