I started my business by using banks, savings, credit cards, lines of credit, creative techniques with sellers (like land contracts or lease/options), and partners. But, once I was self-employed, I was concerned that it was going to be harder to get loans to purchase properties.
I had always been unhappy about how long the banks take to get the job done. I had it take 4-1/2 months on a house without a furnace. The bank didn’t know if they wanted to make a loan on that kind of house, but that is what my rehab business is all about. Buy ’em ugly, cheap and fix ’em.
Just think, if I would have used a private lender on the above deal, I could have bought, fixed & sold the house and pocketed $20,000 by the time I got to the closing table with the bank.
With private lenders, I have the funds available all the time. When a good deal comes my way, I can grab it because I know the money is waiting for me. While my competitors are scrambling around applying at the bank, I’ve made an offer and closed the deal. My rehab crew is all over the property like ants before the competition knows what happened. I love having private lenders for my business.
So, a major benefit is SPEED to purchase a property.
Let’s look at another major benefit of having private lenders. My first private lender was my Mother. My Dad had passed away in 1989 and Mom had insurance money. She proudly invested it on bank certificates of deposit (CDs). When I became a real estate investor, I learned about finding private lenders and so I talked to Mom about it. She loaned me $5,000 and received 10% interest in return. I paid her monthly just like her bank did with her CDs. She was delighted and so was I.
As my use of private lenders increased, I learned that some of them didn’t need monthly payments and so I started to structure my loans so there was no payment until the property is sold.
This is a huge benefit… Think about what this has done to improve my monthly cash flow. Now my Mom will always get monthly payments from me because she is retired and depends on that income BUT anyone who can wait on their money, I’ll let the money accrue. So the second major benefit is improved CASH FLOW because you don’t have to make monthly mortgage payments but just let the interest accrue.
Alan Cowgill is a speaker, author, and real estate entrepreneur. Alan has bought or sold over 200 investment properties. Alan Cowgill is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.