Virtually gone are the days when you could walk into your local bank, discuss a business venture with the bank’s owner, shake hands and walk out with the assurance of a loan to make it possible.
These days, if you need a loan to get started in a new business, such as flipping houses, and approach your local bank, you’ll meet with a loan officer, fill out a bunch of paperwork with your life story and walk out with no idea if you’ll get the loan or not. That’s because your loan application needs to be reviewed by risk management officers, fiduciary officers, vice presidents, etc., most located in other cities and likely scattered across the country.
In the meantime, you wait with no clue as to whether you can secure the loan to launch your new dream business. And that house you were thinking was a great opportunity to make a nice chunk of change in just a few months is gone to another buyer.
While the banking world has become more corporate and more challenging for aspiring small business owners, private money lenders have stepped up to fill that vital role when you need a loan to finance your venture in a hurry. By inputting a little bit of information into the computer, within 24 hours you can expect an electronic handshake to ensure you don’t lose out on your fix and flip opportunity.
Getting Acquainted with Private Money Lenders
Private money lenders are uniquely situated to move quickly on your loan because they specialize in one industry, so they understand the industry and know where the risks and rewards lie.
Unlike with a traditional bank loan, the private money lender is not basing its loan on your income and your ability to make monthly payments. In the fix and flip business, the loan is based on the potential sales price of your property, so the lender isn’t concerned with your monthly income, or even your credit history. The house itself serves as the guarantee the loan will be repaid. During the rehab and sales process, you pay only the monthly interest due, then pay off the loan when you sell the property.
Private money lenders also mitigate the risk for themselves and you by loaning only a certain percentage of the expected value of the house. You are required to invest some of your own money in the project, giving you greater incentive to recoup your investment, pay off your loan and gather your profit.
The private money lender also retains the first lien on the home, meaning if the house turns out to be a loser, the first money lost is your profit, then your investment and lastly, the private money lender’s investment.
When you’re first getting started in the business, the private money lender also will ask you to provide a guarantor who agrees to pay off the loan if you are unable to.
All of this risk reduction on the part of the private money lender also works to your advantage because the lender is able to give you a competitive interest rate on your loan since they have a low risk of suffering a greater loss.
How It All Works
The loan process itself is pretty simple with a private money lender. You’ll have an assigned agent who guides you through the process. You basically provide all the information on the home and your purchase price. The lender will have one of its agents or a private contractor assess the property to ensure the potential sale value is there. Normally, within 24 hours you have that electronic handshake on the loan.
Then it’s time for you to get busy on your flip to repay your loan and realize your profit as quickly as possible.
Contact us to learn more about how simple it can be to start in the fix and flip business with the assistance of a private money lender.
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