What is a Private Real Estate Lender?
As a source of financing for real estate transactions, private real estate lenders play a vital role in supplying needed capital to real estate markets across the United States. Private real estate lenders settle on agreements with borrowers by providing capital in exchange for a higher-than-market rate of return over a predetermined term. In this way, private lenders play a key role in providing attractive financing options to parties on both sides of a negotiated real estate transaction.
Private Real Estate Lenders Explained
To understand how private real estate lenders work, it is important to recognize the key differences between them and standard mortgage lenders. Private real estate lenders provide short-term financing with more flexibility than traditional lenders. They also offer higher interest rates and shorter loan terms whereas traditional lenders are more likely to offer long-term financing at lower interest rates and longer terms.
The loan agreement between a borrower and a private real estate lender often involves what is known as a “hard money” loan. These loans are collateral-based, meaning that the lender has the right to take possession of the property in the event of default. Hard money loans are also drawn up more quickly and include more flexible conditions than traditional mortgage lending.
Furthermore, private real estate lenders tend to specialize in certain areas, often focusing on types of investments that traditional lenders would not be likely to touch. For instance, private real estate lenders may be more likely to finance investments in distressed properties, bridge loans for acquisitions, or loans for developments that are unable to meet traditional bank criteria.
Benefits of Using a Private Real Estate Lender
For the borrower, private real estate lending can provide a much-needed source of funding for a real estate investment or purchase. Private lenders are often considered to be more deal-oriented than traditional banks. In addition, private lenders are often able to close deals quickly, allowing a borrower to get their projects up and running with much less delay than with traditional mortgages.
Private real estate lenders provide a unique source of financing for real estate transactions. While such financing carries higher risks than traditional bank mortgages, the right private loan can be valuable to a borrower in need of funds. Private real estate lenders are an integral part of the real estate investment landscape and as such, should be considered carefully when weighing the various financing options available.
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