What is a private money lender? How can I benefit from one?
The definition of a Arizona private money lender is a non-institutional lender that issues short-term loans for the purchase and renovation of an investment property. These loans are secured by the borrower’s assets. An Arizona private money lender can be anyone from a family member to a private lending institution.
Private money lenders are commonly known as Arizona hard money lenders. These are considered the best types of lenders due to their reliability, costs, fees and loan terms.
The interest on a private money loan is an interest-only monthly payment. What that means is that throughout the repayment period the borrower pays only the interest accrued on the loan as their monthly payment. Then, at the end of the loan it is paid in full. Even though the interest rate will be higher than a conventional bank loan, the monthly payment may easily be less. Because of this many house flippers take out loans from private money lenders. In fact, short-term Fix-and-Flippers that want to buy, renovate and sell within 6 months to a year are great candidates for private money loans. Buy-and-Hold Investors looking to purchase and renovate a rental property, prior to refinancing with a conventional loan, also benefit from these loans. However, private money loans will fund a variety of properties such as apartments, condos, commercial real estate, and single family homes.
Traditional bank loan approval is based largely off a borrower’s FICO score, revenue stream and employment. Private money lenders are less concerned with your FICO score and more interested in your hard assets. This gives the lender security knowing if the borrower defaults they will be repaid.
After-rehab-value (ARV) and loan-to-value (LTV) are terms borrowers should familiarize themselves with. ARV is what the property will be worth once the renovations are complete. LTV describes the size of the loan you take out compared to the value of the property that is securing the loan. Private lenders will usually loan out an amount that is equal to a percent of a property’s LTV or ARV. Most commonly they will lend 90% of a property’s LTV and 80% of a property’s ARV. That being said, it is pretty common for private lenders to give loans based on ARV for a property in poor condition and a loan based on LTV in fair to good condition.
What to look for in an Arizona private lender.
Interest rates and fees— Private money loan interest rates will vary. Typically, interest rates are somewhere around 8%-15%; lending fees around 1.5%-11%. Make sure you research and find the rates and fees that will work best in your situation.
Experience— Lenders are proud of the years they have been in business and the amount of loans they have approved. Often this type of information is found on their websites. The more deals they have done equals more experience. Having experience on your side will make this process run more smoothly.
3. Specialization: Private lenders frequently have a specific area of real estate
they specialize in; this can be residential or commercial. You want to work
with a lender that has experience in the property type you are financing.
Do your homework; find a lender that will work for you. It can be a scary step. But, once you familiarize yourself with the process it can make your dreams come true!
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.