Private Money Lending is the debt side of real estate.
So much of real estate investment information is about how to. How to find the property, raise capital, improve the property, improve operations, refinance and disposition for a profit. Do you ever hear about the income the opportunity from the lender side of a real estate deal?
Anthony Geraci with Geraci Law specializes in working with private money lenders, from single property notes to hedge funds. Real estate investors who lend rather than borrow.
Traditional bank lending is not sexy. Banks are mainstreet. They are regulated. With this comes built in limitations and risk tolerance allowed by regulators. They like borrowers with proven credit history for buildings that are completed, occupied that provides a reasonable assurance of repayment. These properties provide the bank security. They can lien the property with a mortgage, collect regular payments consisting of principal and interest.
If you have a low risk deal that fits the buttoned up model banks are looking for, you will receive a low interest rate after proving you and your deal are worthy.
A private money lender is designed for risk. Often referred to as, hard money, for the risk they take and the rates they charge. Many commercial private lenders structure their loans so that they are interest only.
Because of the higher cost, private lenders are the option of choice for many real estate investors with a short term need to complete a project. For some investors, private money may be a necessity due to poor credit. However, for most, the use of private money is a preferred over conventional lenders.
Private lending is where sexy debt lives. These are the option for investors with an idea to improve a property, ie fix & flip. If you have a non conforming deal, a vacant building, a short term need for capital, or just don’t have the time to wait through the loan by committee process preferred lenders require.
The reward for private money lenders is significant. To guard against the risk, it is imperative that the proper legal contractual protection be used for if, when things go wrong. Each lender is unique and for this, the structure and offerings will vary depending.
Your legal team will advise you through all phases to manage the risk of your private lending business. Like any business activity, setting up the proper entity is a first step. Additionally, private placement memorandums are needed when raising capital from investors and loan documents for use with your borrowers.
When things go wrong; foreclosure, etc, your recourse is spelled out in the legal contracts signed by both parties. For this reason, it is a must to work with legal counsel focused on real estate.
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