Everyday, I open up my inbox and I see countless messages or promotions from Private Lenders – both individual’s and institutional privates, seeking to compete in this ever-changing mortgage landscape.
Gone are the days, you could call a private lender and ask them to fund your client’s troubled file. Now they are also requiring more paperwork (even when they say they don’t) and their rates and fees are getting higher and higher! Private Lenders are feeling the squeeze too!
Why is this?
For one the market cannot rebound or absorb the over-inflated numbers we were seeing from the last two years. For instance, clients who were over-bidding on properties and in some cases paying over $100,000 to get into that property are now looking for a way out. However, they are in negative equity situations, which means they are stuck with the their current lending options or selling at a loss to get out from the overwhelming debt.
Many real estate investors start out with a dream of owning many properties but ultimately, many things can sway the dream or the well-thought out plans, such as low inventory, high prices, low cash flow and the inability to qualify.
So you have money but can’t get the returns you want, or you cannot find a property within your budget, so how can you make that money work for you? There are many different options available.
As a real estate investor I dreamed of having a horde of rental properties but with prices where they are, down payment requirements, land-lording issues in some cases and finding good deals, I turned instead to private lending.
I liquidated my last property after completing two Rent-to-Own deals but have kept my Four-Plex as it is a JV deal that is too good to get rid of plus it keeps me in the game so to speak.
At this point in my life, I am looking to put more focus on my retirement goals and initially I thought I could do that by having rentals, however I realized that I like the low-key approach to investing rather than looking for great deals, trying to find partners with money and chasing down tenants for rent.
Private Lending has become a hot topic of late! Due to a variety of reasons, borrowers may need private loans due to insufficient income to qualify for a mortgage, debt consolidation, damaged credit and even people looking to borrow money against their equity. However in many cases the existing lender may not be willing to lend against that equity and therefore people turn to private loans for a solution. But it’s not always that easy or clear on how they work so let’s unravel the private lending world.
In Part 1, I will speak about the borrower and private lender. In Part 2, I will speak about how you as an investor can loan your money in private lending as an alternative to owning property.