Private Lender Financing
The process of finding and securing financing from a private lender can seem overwhelming. Between building a relationship, gathering documents, pitching your idea, and making sure all the paperwork is properly submitted, it may feel impossible. National Escrow & Title can help relive some of the pressure by ensuring your financing is secured in legal, time efficient manner.
What Is A Private Lender?
A private lender is someone who uses their capital to finance investments, such as real estate, and profits from interest paid on the loan. Private lenders are not affiliated with a bank or other financial institution, and instead interact directly with the borrower. There are private lending companies that investors can seek out.
Private lenders are a valuable asset to investors because they often have different approval requirements and a faster pace than traditional financing processes. While the qualifications and interest rates will vary based on the situation, the process of working with private lenders will be similar to other loans.
How To Find Private Lenders For Real Estate?
When you are first getting started in real estate, you may look at your colleagues and wonder how they are financing deals. More often than not, investors are using private real estate lenders to fund properties.
There are many private lenders out there, but the most challenging aspect can be to find one that is willing to fund your deal. However, with the right mindset and preparation, you will be sure to find private real estate lenders who will want to help you. The following are tips on how to find private investors for real estate:
- Learn the ins and outs of private real estate loans.
- Build a network of potential private lenders.
- Prepare a strong portfolio to present.
- Identify the right lender for the project.
- Wow lenders with your pitch.
Build A Network
Unlike securing a loan from a bank working with private lenders is all about building relationships. This starts with developing a solid investor network.
It is a good idea to begin building your network on two fronts. First, get to know professionals in your industry, such as real estate agents, fellow investors, title companies, attorneys, and private investors. Many private lenders will come through referrals within your own real estate network.
Second, it is a good idea to build your contact list from people outside of the real estate industry. This includes friends, family, colleagues and anyone who is not currently an investor but might be looking for new opportunities. Many aspiring investors may just be waiting a good opportunity to come around before getting started. Alternately, some of your friends and colleagues may have valuable connections outside of your existing network.
Prepare Your Materials
Put together the materials that you would be sharing with private lenders during your pitch. This includes a company overview, which covers your education, goals, past deals and experience, and what makes you the right investor for their funds.
Along with this information, you will want to prepare a presentation or video that outlines previous properties you have worked with. This should outline the success of the past deals, including pictures, numbers and relevant information. You do not need to include every single property you have completed, and instead should select the properties that show your best work. Remember you want to make a good impression and highlight your strengths.
One more thing to add to your to-do list, which may not be as tangible as a company overview or introductory video, is to have a clear understanding of the private investor process. Look into the documents you will need to present to an investors, such as a promissory note and insurance. Also write out important information like how long the process will take, when they can expect to see the loan paid in full and what happens if there are multiple investors. Going in with this information will ensure you are prepared for any questions that come your way during the pitch.
This is where our office can help you. Having documentation specific to your transaction is crucial. Our office can help you prepare the note, mortgage, and title search with estimated cost, mortgage amortization (payment schedule), and drafts of documents required to secure your loan.
Select Your Private Lender
Finding private lenders might be tough at first, but it is important to keep in mind that the relationship is a two-way street. Although you will spend time pitching to potential investors and trying to impress them, you will want to make sure that the lender you ultimately choose will serve your needs, and not just the other way around.
First, make sure to ask them about their proposed loan term and interest rate, and what the loan will be based on. This will help you find out how long you will have to pay the loan back, and how quickly it will accrue interest. Further, you will want to know if they prefer to make their loans based on the property’s current value, or after-repair value. Be sure to inquire about potential fees they charge, whether they are upfront or in the form of penalties. Finally, find out the schedule at which the lender will disperse their funds to you.
Based on this information, you will be able to identify which private loan will present the least amount of risk to you.
Make The Pitch
Finalizing a deal with a private lender is about far more than explaining the numbers and going over the property. You need to put your potential partner at ease and make sure you are both on the same page.
To establish this rapport, go into your initial pitch meeting focused squarely on educating them about the process. Keep building that relationship piece-by-piece. Resist the temptation to go for the quick sale, or fast deal, it won’t work — and it may leave you in worse shape then when you started.
Instead focus on answering questions, especially those referring to profit splits and timelines. This is what most private investors are worried. And the more you can put them at ease by thinking of things from their point of view, the more likely you are to secure private financing.
Our office can assist with:
- Title and lien searches for investor review
- Draft of closing statements to reflect closing cost
- Lender/Investor Cost
- Third-party cost
- Draft of the loan documents to secure the funds/loan to the property (promissory note, mortgage and financing agreement)
- Calculation of Potential Recording fees and county cost
Once the transaction is placed with National Escrow and Title, we will make all documents State and transaction specific.
