To be successful, it is essential for real estate investors to fully comprehend the entire spectrum of financing options they can utilize to grow and scale their business operations. There is a seemingly overwhelming array of available loan options in the current market, each of them bringing certain advantages and drawbacks depending on the context in which they are being utilized. The ability to accurately evaluate which financing plan is best aligned with your own unique investment strategy is a must for savvy real estate investors looking to optimize their long-term return on investment. To that end, the lending specialists at Gauntlet Funding have drawn on their years of experience helping investors maximize their profitability in order to provide the following comparison between traditional bank loans and private money loans to assist you in determining what financing approach is the best option for you.
The process of obtaining a traditional bank loan is a very involved and time-consuming affair. A prospective borrower would first be required to physically go to the bank and request an official to provide them with a conventional mortgage to assist in financing the acquisition of their property. The ensuring underwriting and vetting phase is exhaustively meticulous and involves seemingly endless stacks of documentation to substantiate the viability of your proposed transaction and your financial capacity to ultimately pay off the loan balance over a certain period of time. To illustrate, to successfully obtain a conventional mortgage, investors must indicate that they possess above-average credit scores, substantial income and adequate collateral to secure the loan then additionally provide a personal guarantee and make a sizeable down payment up front. This is anything but a fast process—often taking multiple months to close.
It should also be noted that although conventional loan options may feature appealingly low interest rates, they are not always the lowest out of all the funding options available to borrowers—plus there is a greater chance that your loan application will ultimately be denied given the stringent underwriting guidelines banks must adhere to thanks to heightened regulatory measures implemented after the fallout of the 2008 market crash. The unfortunate reality is that regardless of the lengthy underwriting process and substantial paperwork requirements, major financial institutions are simply too concerned with mitigating risk to provide effective funding options for real estate investors.
For investors that have run into the roadblock of getting denied for a conventional bank loan due to the lender determining their income was substantial or lacked the out-of-pocket funds to cover an exorbitant down payment, there is an alternative financing solution: partnering with a private lender (or ‘hard money’ lender). Because the majority of entrepreneurial real estate investors find it challenging to obtain a traditional bank mortgage, working with a reputable private lending organization like Gauntlet Funding that has an established track record of success in assisting investors grow and scale their businesses is a great option.
A hard money or private money lender is an institutional entity or individual that lends capital, typically in such a way that the associated property asset secures the loan in order to facilitate the proposed real estate deal.
For investors seeking to lock in financing for their next project, hard money loans are an ideal option as they offer a much greater degree of flexibility and can be closed much quicker than traditional bank loans. Because the property itself secures the loan, private money lenders are less concerned with your credit score or income verification—meaning solo investors can still obtain funding for promising investment moves. Due to this streamlined underwriting process, private money lenders are able to provide access to funding in a matter of days as opposed to months without all the paperwork banks ask for, allowing real estate investors to confidently submit bids on properties without having to worry about any delays associated with financing. This gives them a competitive edge when attempting to secure a promising property where there are multiple competing offers. What’s more, private money loans typically have zero or substantially reduced down payment requirements, effectively lowering the financial barrier to entry for gaining access to working capital.
Ready to experience the private money lending difference? Contact Gauntlet Funding today to learn more about our comprehensive range of flexible and innovative funding solutions that allow you to build your investment portfolio effortlessly!