Are you an investor interested in commercial or residential real estate? Connecticut has many opportunities for the discerning developer, but to make a worthwhile investment, you need funding. When you’re looking for fix and flip loans or want to construct rental housing, a traditional mortgage may not cut it. Property investment necessitates quick access to cash to avoid missing a great opportunity. Instead of getting caught up in red tape and 30-year terms, you should take advantage of the flexibility of private money lending.
How is private lending different from financing with a bank? Private money lenders are companies that offer alternative financing to investors. They typically provide a wider range of options that better fulfill investment needs.
To offer this flexibility, private lenders use a different approval process than regular banks. While traditional financial institutions are usually concerned with your credit history, private lenders typically are more interested in the property’s value.
In the event you default, the real estate then passes to the financiers to recoup losses. This type of financing is generally considered higher risk than traditional mortgages, so you’ll likely have a higher interest rate and lower LTV ratio.
If interest is higher, why opt for private lending? There are several factors that can benefit real estate investors:
Quick approval process
Fast access to cash
Ease of approval compared to traditional mortgages
Time is of the essence when investing in real estate. The traditional mortgage application process can take months, which may mean missed opportunities. Private money loans, on the other hand, can take as little as 24 hours to process.
These loans also have shorter terms — most last five years or less. This allows borrowers to avoid getting tangled up in long-term debt when they intend to sell the property quickly. Finally, the emphasis on property value means this financing is easier to get approved for if you have poor or no credit. Even if you’re a new investor, you can get the funding you need to break into the real estate market.
House flipping can be a lucrative industry, but it may also come with a slew of expenses such as:
Permits, appraisals and fees
Contractor and labor costs
Flipping can also be risky since you never know what problems you’ll run into with plumbing, foundation of the property, and pest control. To cover these costs, investors often seek fix and flip loans, which are specifically designed for this purpose.
If you run into an issue in the middle of renovations, the whole project can stall, which means dollars down the drain. With the quick processing of a fix and flip loan, you can get repairs back on track in no time.
Usually, selling a home provides enough cash to cover the down payment on a new house. However, it can be difficult to coordinate buying and selling, and you may end up needing funds before your current home sells.
Since your mortgage isn’t likely to cover the down payment, what are your options? Bridge loans, also known as hard money lending, are short-term financing to help homeowners “bridge” the gap between selling and buying property. They typically last a year, since lenders assume a fast payoff.
Are you interested in acquiring property for rentals? If you fix up residences with the intention to rent, you may benefit from rental loans. This financing is more long-term than most types of private lending, which means you have longer to turn a profit and pay off the loan. The longer term can be especially beneficial if the property needs a lot of repair or ongoing maintenance.
Finding financing for new construction can be difficult since there’s no collateral to mitigate the risk for lenders. However, there’s certainly a need for this type of loan. In addition to purchasing materials and hiring a contractor and architect, investors need to procure land on which they can build.
Private money lending for new construction is designed with these difficulties in mind and provides a way for entrepreneurs to develop their real estate. Are you a real estate investor looking for flexible, reliable financing with competitive terms?