The world of real estate financing may seem convoluted and arcane but, in actuality, it is really only comprised of two distinct types of lenders. On the one hand, there are traditional lending institutions like banks, and on the other, the more unconventional but far more flexible types of lenders which include wealthy individuals and private money entities. Each type of lender serves a valuable purpose in the real estate investing world but they are by no means interchangeable.
The traditional route for a first-time or inexperienced real estate investor is to go through the same lending institutions that he/she borrowed the money to purchase his/her own home. While this process works well for the person buying a single family home, it is not particularly suitable for an individual who has a real estate deal with any unusual circumstances.
Loan officers associated with traditional lending institutions must pass the real estate deal through a loan approval process. During this process, the loan is subjected to various financial tests that determine whether the loan can be approved or not. In most cases, any peculiarities of the deal can stall the approval process or eliminate it from consideration altogether.
In contrast, private money lenders suffer from no such restrictions. While all applicable laws are followed and the utmost care is taken to safeguard the interests of the lender and the borrower, the final decision on whether to consummate the deal or not is left entirely in the hands of the lender. There is no committee approval process whatsoever.
The benefits of a private money lending deal are immediate and long lasting for both parties. The usual red tape is diminished for the borrower and the lender gains a much better rate of return on his investment. In addition, the approval process is expedited to a significant degree. This factor benefits the lender who keeps his money working and also helps the borrower who can more quickly start developing his property.
A Win-Win Proposition
Private money real estate investment deals meet the needs of both borrowers and lenders. The ready availability of monies is of paramount importance to borrowers while the ability to consistently make returns is important to lenders. The use of private lending companies resolves both of these problems by bringing together reputable borrowers and lenders. In the end, the goals of both parties are accomplished.