Understanding Private Loans
Everything you need to know.
About Private loans
Understanding a particular market, and in particular the direction it is headed, is an invaluable asset.
Private Lenders are in the business of making money. Therefore, mitigating risk is a top priority. There are essentially eight factors to consider when deciding whether or not a potential loan opportunity is viable...
Proper documentation
Private lenders are willing to give loans to investors who are able to present the profitability of the deal they are investing in, but investors need to be prepared to present the proper documentation in order to display the viability of the deal. If you do your research and mind your due diligence, you will be steps away from funding your next deal with a private money loan
how private money loans are used
Although private money loans can be used for several different purposes, the deals typically fall into one of four categories:
Fix and Flip
Rehab and Rent
Building on Spec
Commercial Development
They can be long- or short-term loans, disbursed in lump sums or installments, and even include profit-sharing agreements.
Understanding Private Loans
At the risk of sounding too cliché, money and experience are the most important aspects a private money investor needs to exhibit. Essentially, when it comes down to it, the most successful private lenders have an increased propensity for the real estate industry and a proven track record of identifying powerful lending opportunities. Perhaps even more importantly, however, is a their tendency to remain hyper localized, as a working knowledge of a region is absolutely critical to success. Understanding a particular market, and in particular the direction it is headed, is an invaluable asset.
Private Lenders are in the business of making money. Therefore, mitigating risk is a top priority. There are essentially eight factors to consider when deciding whether or not a potential loan opportunity is viable. They are as follows:
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Market Value
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Borrower Credit
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Borrower Equity
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Additional Collateral
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Lien Priority
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Pricing Strategy
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Exit Strategy
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Due Diligence
Each of these factors must be taken into consideration when determining whether or not to pursue a loan opportunity. Failure to mind due diligence and neglect either one of these could result in harsh consequences. Due yourself a favor and navigate the process with precision.