If you’re thinking about flipping homes and expanding your investment portfolio, seeking out private lenders is likely your best option. Funding a real estate investment isn’t as simple as it seems. A property investment can cost as much as $50,000 in hard cash, usually for a three-bedroom house.
If you lack the cash reserves to fund your own house flipping project, it may be time to call a private money lender. However, the question is how to find the right private money lender. As you will find out, there are a lot of factors to consider when making the right decision.
Below, you’ll learn everything there is to know about private mortgage lenders and how to make the right choice.
What are Private Lenders?
A private lender is an individual or company that agrees to lend you money without being attached to a bank or a credit lender. To understand what a private lender is, you’ll first need to grasp the concept of a traditional lender.
A traditional lender is typically a bank. For standard home loans, traditional lenders will grant you a mortgage loan. This is whether or not you plan to live in the home or not. Mortgage loans have several stipulations, which will be discussed later.
For example, traditional lenders will require borrowers to have a high credit score and stable income. Private lenders will often lend money with fewer strings attached.
If you’re already made it up in your mind to look for a private lender, here are some benefits to consider.
Benefits of Choosing a Private Money Lender
Here are some of the most amazing benefits of choosing a private lender to fund your real estate investment:
Private Lenders Don’t Have Many Requirements:
One of the downsides of doing business with traditional lenders is that there are several requirements to qualify for a loan. These requirements include:
- A high credit score (at least 620)
- Stable income history of at least two years
- A significant down payment
- A low debt-to-income (DTI) ratio
Private lenders are generally more lenient on these terms and will lend to you if your credit score doesn’t meet traditional requirements.
Private Lenders are Very Flexible:
Private lenders offer all kinds of hard money loans for real estate investments. The best part is that you can negotiate any fees, interest rates, and terms with the private lender. By shopping around, you can find a private loan that meets your terms.
You’ll Have Complete Control Over the Lending Process:
Everyone knows that banks and credit lenders have company rules to follow when approving home loans. This doesn’t give you much freedom of negotiating a fair loan. When you do business with a private lender, you can set your own terms.
If you have any substantial collateral, a private lender will usually have no problem accepting your terms in case your investment falls flat.
You Can Avoid a Lengthy Loan Approval Process:
When you choose a private lender, you can avoid a lengthy loan approval process. Private lenders can approve and fund your property investment within a few days or weeks.
On the other hand, you may have to wait several weeks and even months if your loan application is approved by a bank. This benefit is huge if you’re ready to get started with your real estate investment immediately.
Private Lenders Help When No One Else Can:
If you plan on leading an ambitious property investment project, it’s likely that several banks and credit lenders will reject your application. These financial institutions tend to stay away from risky investments. When all else fails, finding a private lender is your best solution for turning your real estate dream into a reality.
How to Find the Best Private Lender (9 Simple Steps):
Are you ready to learn how to find the best private lenders? These nine steps will help point you in the right direction:
1. Ask Family and Friends
The first step of finding private lenders is asking your immediate inner circle, which is family and friends. If you have a strong support system, it shouldn’t be difficult collecting funds for your property investment. Still, don’t expect your friends and relatives to give to your cause without a reason.
Convince them of the benefits of lending to you and make sure the return of investment (ROI) will cover their losses.
2. Ask Your Colleagues
Your secondary circle consists of colleagues and friends as well. If you have strong relationships with these people, you can ask for them to lend you money. Again, investments aren’t charitable donations.
Treat these transactions as a business agreement and make sure these people know how they’ll gain from investing their hard-earned money to grow your investment portfolio.
3. Spread the Word on Social Media
Social media marketing should be a core aspect of your advertising strategy. Social media networks, like Facebook and Instagram, are home to billions of people. Showing off your progress, properties for sale and rentals is a smart strategy to achieve instant engagement from potential buyers.
Announcing your intention to start another property investment on social media could attract help from wealthy investors.
4. Pitch an Investor Directly
If you know of any potential investors, it couldn’t hurt to reach out to them directly. Before you reach out, it’s important to create a personalized outreach message. Understand that investors likely receive dozens of emails and phone calls every day about investment opportunities.
If you send a copy-and-pasted message to a potential investor, it’s likely you’ll get ignored. With that said, here are some tips to follow when pitching an investor about your project:
- Address an investor by their first name.
- Explain how the investor will benefit from your project instead of blatantly asking for money.
- Discuss the wow factor of your project and why it’s different.
- Talk about your credibility in finishing your project.
5. Take Advantage of Networking Opportunities
If you’re struggling to find investors, you can always visit places where they’re most likely to be. Take advantage of networking opportunities, such as open houses and property auctions.
Make yourself known and get the contact information even of people you consider rival bidders. One day, they may be useful if you need to cash to fund a real estate property in the future.
6. Use Public Search Records
Using public search records is time-consuming, but it’s arguably a foolproof method of finding potential investors for your upcoming project. Whenever a person is granted a home loan, the transaction is entered into the public domain. This simply means that anyone can access public records to find out who granted the loan.
When checking pubic records, check the “grantee” line. This is the mortgage provider, whether they’re a bank or private lender. If you come across an area with several turn-key properties, you can check who financed these projects.
Finally, you can reach out and pitch your project to them.
7. Try Cold Calling
After you create a shortlist of possible private lenders, it’s time to contact them. Sometimes, phone calls are more effective than emails.
However, how you structure your phone call message will impact if your pitch is ignored or given the time of day. Here are some factors to consider when cold calling a potential investor:
- Get straight to the point.
- If possible, leave a voicemail.
- Ask to speak to the investor directly.
- If the investor is away, wait to speak to them until they come back.
8. Use Direct Mail Marketing
Direct mail marketing is also a very effective option for reaching out to numerous property investors. If you utilize a strong direct mail strategy, you’ll be doing more than sending convincing emails.
You’ll show off how professional your brand is and communicate just why a private lender should fund your property investment. Direct mail marketing is one of the most effective ways of reaching younger audiences.
9. Crowdsourcing is an Option Too
Crowdsourcing has become a very popular method of funding independent projects, since the start of the internet and social media.
Needless to say, you can take advantage of crowdsourcing platforms to convince investors to lend you money for your project. The catch is that you’ll need to captivate your audience with the story of your project.
This means creating a trailer to highlight your investment portfolio and the property you plan to renovate. The more compelling your story is, the more willing people will give to your cause.
Factors to Consider Before Choosing a Private Lender
As you can see, there are many methods for selecting the right private lender. Before you make your decision, there are some important considerations to keep in mind. Here is everything to know before choosing a private lender:
Do Your Homework:
There is nothing more off-putting than meeting a private lender who discovers you’re not knowledgable about the real estate business. Private lenders will not lend you money if you don’t impress them with your knowledge on turning a profit.
Before setting up a meeting with a private lender, do your homework and learn more about real estate loans. Also, be transparent and honest about why you need their help.
If your credit score isn’t where you want it to be, let them. Also, if you’ve been denied by a bank, give them this information upfront.
Find Properties That Can Yield a High ROI
Overall, private lenders are most concerned with turning a profit from the money they lend. If you can convince them that their investment will yield a high ROI, they’ll definitely be interested in working with you.
The challenge is pointing out the difficulty in completing a property investment while explaining what’s in it for them.
Prepare a Solid Pitch:
When reaching out to a private lender, it’s important to nail the pitch. Your pitch will ultimately make or break your outreach efforts.
When making your pitch, here are some things to consider:
- Keep your pitch brief and concise.
- Explain what’s unique about your project.
- Be honest about your current financial situation.
- Use professional language to show your real estate expertise.
The stronger your pitch is, the more likely your proposal will be accepted. Private lenders won’t appreciate spam offers.
Watch Out for Scams:
There are so many scams online, featuring private lenders willing to lend large amounts of money with very low interest. These are scams.
There isn’t a single private lender out there that will want to lend their money at cheap rates to complete strangers. These scammers will attempt to collect an application fee from you. When you pay, you’ll never hear from them again.
Bring a Business Plan:
An extra tip for making sure you select the right lender is bringing a business plan during your meeting. Not only will showing a business plan make you look professional in front of a lender, but it will also showcase your real estate chops when it matters most.
If you want to differentiate yourself from other borrowers, creating a detailed business plan is a worthwhile strategy.
In the real estate industry, persistence pays off. Many private lenders may tell you no. Some may ignore your pitch entirely. Nonetheless, there are hundreds of private lenders you can choose from, no matter where you live.
If you’re persistent, you can find several private lenders that are willing to negotiate on your terms. When a bank turns down your home loan application, other rival banks are likely to follow.
You can solace in the fact that private lenders operate differently and play by their own rules. You can usually find the lender you’re comfortable with some relentlessness.
Start a Private Loan Today!
Securing a loan private lenders is a straightforward process. If you follow all of the strategies above, you’ll find that the process isn’t as difficult as you imagined.
At LendSimpli, we offer private loans at competitive rates to real estate investors. Investors can even see their rates without submitting any of their personal information.
If you’re interested in this alternative, contact us today to learn more about our services and start your loan.