Creative Real Estate Financing Solutions — Using Private Money
Understanding Raising Private Money:
This is the holy grail of real estate investing.
Now at this point, you might be wondering, especially if you checked out my last blog about hard money, what is the difference between hard money and private money?
The difference is that hard lenders are in the business of lending money. Whereas private investors can be anybody. So perhaps it is the middle ground of hard lenders and partners.
The rate and term of the loan are up to you and the private lender.
Short term -> 6 months to 2 years; usually for flips
Medium-term -> 2 to 10 years; most commonly used for repositioning (improving, leasing, and refinancing) properties or other shorter projects when the lender doesn’t want their cash tied up for too long
Long term -> 10 years + most commonly used for buy-and-hold investments
Private lenders can literally be anyone. More people have savings than you think and are looking for a place to invest. Not to mention that a lot of people have savings in their 401ks. They just need someone they can trust to invest with.
So your job becomes:
- Find these people
- Impress them with your brand
- Have strong deals in place
Borrow money from friends and family
Create an Online Presence
Search the Public Records
Risks and Drawbacks to Using Private Money:
You will definitely need to use a lawyer to set up the infrastructure of the business from the start
It involves a lot of networking, which can take a lot of time.
It involves higher interest rates. So you will need better deals.
People are involved, which means personalities are involved, which means conflicting interests and insecurities are involved
The bottomline is this, if you want to go the private investor route, which is a very solid long-term solution, you must:
- Have great deals, build strong relationships, and have integrity