Ferrari Vs Camry, why you should be using private lenders for real estate investments
Real estate investing can be a great way to build wealth, but it often requires a significant amount of capital to get started. One of the most common ways to finance a real estate investment is through a mortgage, just like how you’d need a big pile of cash to buy your dream car, but instead, it’s a big pile of debt to buy your dream house. But just like cars, there are different types of mortgages available, including bank loans and private loans, sometimes known as hard money loans.
A bank loan, also known as a traditional mortgage, is like the Toyota Camry of the mortgage world: it’s reliable and it gets the job done. For many real estate investors, for example, for investors with longer term investments, bank loans are the best option.
However, bank loans have some drawbacks, especially if you’re looking to rapidly grow your real estate portfolio – like one would to take advantage of periods of economic distress and falling house prices… Enter the Ferrari.
A private loan is like the Ferrari of the mortgage world: it’s exciting, offers more flexibility and can be a better fit for those who are looking to build wealth quickly. Many incorrectly equate private loans with skeevy hard money lenders. The reality is that much of the private lending space is occupied by institutional level debt providers and well established bridge and hard money private lenders with established track records. For many investors, for example, house flippers, private loans are the only option. Simply put, ignoring the advantages of private lenders for real estate investments is akin to malpractice. Let’s review Diggifi’s top five reasons why.
- Faster Approval: Private lenders can often approve loans more quickly than banks, which can be beneficial for real estate investors looking to act fast on investment opportunities.
- Less Stringent Requirements: Private lenders may have less stringent requirements than banks, such as lower credit score requirements, which can make them more accessible to investors who may not qualify for traditional mortgages.
- More Flexibility: Private lenders may be more willing to consider unique or difficult-to-finance properties, such as fixer-uppers, which can make them a better option for real estate investors looking to purchase and renovate properties.
- More willing to lend for short term profits: Private lenders are more willing to lend for short-term profits, such as flipping properties, because of the higher interest rates and shorter loan terms.
- Can be used as a bridge loan: Private loans can be used as a bridge loan to help investors acquire a property while they secure traditional financing, this can be useful if the investor is looking to acquire a property quickly and the traditional loan process would take too long.
Furthermore, traditional banks typically require a high credit score, a large down payment, and a significant amount of documentation to prove income and employment. Additionally, banks often have rigid guidelines for the types of properties they will finance, and may not be willing to lend for certain types of investment properties such as fixer-uppers or those in need of significant repairs. The process can be very time-consuming and may take weeks or even months to receive a decision, which can be a significant disadvantage for real estate investors who need to act quickly on investment opportunities.
Of course private loans are not for every real estate investment. Private lenders typically charge higher interest rates than banks, and usually offer shorter loan terms, such as 1-5 years, which often means they aren’t a fit for longer term investments.
It’s important to note that the advantages and disadvantages of each loan type may differ for each individual borrower. The decision of whether to go with a bank loan or a private loan depends on the individual or entity’s financial situation, credit score, the type of investment property and the investor’s risk tolerance. In the end, it’s all about what you’re looking for in a financial partner. If you want stability and security, a bank loan might be the way to go. But if you’re feeling a little more adventurous and don’t mind taking a bit of a risk, a private loan might be just the ticket to get you into that fixer-upper you’ve been dreaming of.
Are you curious how to access qualified private lenders for your next real estate investment? Diggifi is the easiest way to quote your deal and get funded, quickly, from the lenders that are built for your project. You can learn more about Diggifi on our website: www.diggifi.com and can download the app here App Store and here Google Play.