Private Lenders for Real Estate Transactions
In most instances, when you are looking for private lenders for real estate then you are going to run into a number of hard money mortgage brokers. In fact, this should be the first place that you go to when you are seeking this type of financing. It should be immediately noted that private lenders for real estate often want substantial collateral well as a very strong return on their investment. You can anticipate that this type of financing will also only have a term of about one to three years. There are some exceptions to these rules, but you are going to be hard pressed to find a private investor or lender that is going to be willing to go beyond those terms unless you share a portion of the equity with the potential funding source.
In regards to the fees involved with working with a private lender for real estate, you can expect to pay 10% to 20% per year on the total amount of outstanding principal balance. You can also expect to pay an upfront fee of 4% to 6% of the face value of the loan. These fees are generally split equally between a mortgage broker, if applicable, as well as the investor. In some circumstances, these fees are either added to the total loan balance or are subtracted from the amount that they lend to you.
Returning to what was mentioned in the first paragraph, if you are seeking this type of funding then it may be in your best interest to contact a mortgage broker or banker. These people and firms often have a number of connections with individual lenders that are happy to make real estate loans. The collateral and high interest rates associated with this type of investing have actually caused more people to enter the market with capital. As the housing market appears to be bottoming out, the risk reward ratio for private real estate lenders has increased substantially.
One of the things that you should be aware of is that you are ultimately are going to need to refinance this loan very quickly. The costs associated with a hard money mortgage are several times the current prevailing interest rate. As such, you may want to be prepared to approach a traditional financial institution if you are seeking capital for a specialized property project. You may also want to investigate working with a private investor in regards to equity sharing as an alternative to this type of financing.