As an investor, you want to build a profitable real estate portfolio. But unless you have a significant amount of cash on hand, you’ll need to find the financing to make that happen.
Sometimes, the best option is to go to a bank. But other times — and more often than you’d think — there’s another option that can be a better fit, and that’s private money lenders.
A private money lender (or private investor) is any individual or company that’s not an institution (like a bank) and loans money for real estate transactions. Private money lenders are typically people you know (like friends and family) or associates of people you know. Private money loans are typically secured by a deed of trust and note, and are much more relationship-based than more traditional loans.
Private investors can be a great solution for finding the money you need to get started building your portfolio. Let’s take a look at the private money-lending industry, why it’s a great option for real estate investors, and how to find private investors for real estate:
Private Money Lenders: The Pros and the Cons
Just like any other form of financing, there are pros and cons to working with private money lenders. Let’s start with the pros.
Pros of Working with Private Money Lenders
When you work with a private money lender, there’s far fewer hoops to jump through. When you work with a bank or an institutional lender, you’re subject to all the legal rules and restrictions that institution must abide by. But with private money lenders, there’s less red tape. They don’t have the same kind of government-imposed rules and regulations, which means they’ll be easier to deal with.
When you work with a bank or an institutional lender, you’re subject to all the legal rules and restrictions that institution must abide by. But with private money lenders, there’s less red tape.
Private money lenders are also much more flexible than traditional lenders. Because they’re not a large institution dealing with hundreds of transactions a day, they can take every investment opportunity on a case-by-case basis — which, if you’ve struggled to secure lending in the past, can be a huge benefit.
Cons of Working with Private Money Lenders
There are also some definite personal advantages to working with a private money lender. Because you’re likely working with someone you know (or an associate of someone you know), the relationship between you and your lender is a much more personal one. Instead of working with an anonymous bank — that has no interest in whether you succeed or fail — working with private money lenders is much more relationship-based; they’re invested in seeing you (and their investment) succeed.
Now, let’s talk about the cons. While a traditional mortgage is typically 15 or 30 years, private money lenders usually want to be paid back in a shorter term. You also won’t get the same kind of tax breaks (like writing off your mortgage interest) with a private money lender that you do with more traditional lenders.
That being said, if you need cash and you need it fast, private money lenders are a really great option to get your real estate investment business off the ground.
How Using a Private Investor Is Different Than Using Banks
The process of working with a private money lender is different than working with a bank, and it’s important you know how to structure private money deals and how they differ from more traditional lending options.
There are two different types of private money lenders: a personal investor (like a friend or family member) and a lending service like Lending One. Obviously, working with a personal investor offers you more flexibility and a more personal experience, but if you don’t know of anyone willing to invest, using a service like Lending One can get you the capital you need to get your real estate investment business started.
Whether you work with a personal investor or a lending service, you’ll find it’s easier to get the cash you need than it would be if you went to a bank. Private money lenders have less strict lending guidelines and typically work at a faster pace than banks, which means you’ll get the money you need, when you need it.
Whether you work with a personal investor or a lending service, you’ll find it’s easier to get the cash you need than it would be if you went to a bank.
How to Find Private Money Lenders in Texas
There are a few ways to find private money lenders to fund your real estate investments in Texas.
One way to find a private investor is to tap into your existing network. Make a list of everyone you know — friends, family, and colleagues — and ask if they’d be willing to invest. If your immediate circle doesn’t have anyone ready to invest, ask them for referrals of people in their network who they think could be a good fit. Pitching an investment to someone you know (or to someone closely tied to your network) typically has a higher success rate than trying to get an investment from strangers.
If there’s no one in your network, you can also look for well-known private investors in your area. There are plenty of people out there who make their living in private money lending, and if you present them with an attractive opportunity, they might be willing to invest. You can also reach out to private money-lending services and secure funding that way.
Private Money Sources in the DFW Area
Ready to find a private investor in the Dallas/Fort Worth area? You can find a directory of private money lenders at Private Lender Link here.
Whether you’re looking to start your real estate business or add property to your portfolio, private money lenders can be a great way to secure the funding you need to purchase property.
