A Real Estate Investor’s Introduction To Private Money Loans

private money loan, often referred to as a “hard money” loan, is a real estate loan made by private individuals or groups of investors. Unlike banks and other conventional lenders, private money lenders are primarily interested in the value of the property being used as collateral and put much less emphasis on a borrower’s credit report and debt-to-income ratio. This approach gives private money lenders the flexibility to fund loans that conventional lenders might deem too risky to approve.

Commercial Building Financing

Experienced investors often rely on private money to acquire investment properties in hot markets or to get funding for unique properties other lenders won’t touch, but private money loans are not for everyone. Because of the increased risk involved for the lender, real estate loans made with private money are often more expensive than loans available through conventional financial institutions both in terms of interest rates and fees charged. In addition, private money lenders typically only lend a maximum of 65-70% on the most desirable properties, and even less on special use properties or properties located in rural areas.

Even with these limitations private money loans can be an important part of an investor’s real estate strategy due to several positive features, including the following:

Residential Hard Money Loans

Private money loans are not the right solution for every loan scenario, but they are an important tool that should be considered by every real estate investor. Used as part of the right investment strategy, private money loans can help enhance an investor’s real estate portfolio to reach their overall financial goals.

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E. Paul Whetten

About the Author: Paul Whetten is the Vice President of Lending at American Life Financial the lending arm of American Savings Life Insurance Company based in Mesa, Arizona. Paul has 10 years of experience in enterprise management and small business accounting and over 15 years of experience in the financial services industry. He graduated magna cum laude from Arizona State University with a degree in History and went on to receive a Masters of Administration degree, with distinction, from Northern Arizona University. In addition to his responsibilities with American Life Financial Paul is an adjunct professor of business at Mesa Community College. Paul can be reached at paul@notsohardmoney.com