What is a Private Lender? A private lender is an individual who provides money for real estate investments. The money can be used to purchase residential, commercial or rental real estate or to supplement funds to cover down payments or renovation costs.
The benefits to the private lender are enjoying the security of asset-based lending and receiving returns that are typically better than those provided by traditional investments.
The most common form of Private Lending occurs in the context of individual lenders seeking to maximize investment returns in exchange for speed and flexibility – funding traits highly sought-after by real estate developers. Synonymous terms are “peer-to-peer lending,” “self-directed lending,” and “non-traditional lending.”
Why is Private Lending a good strategy for an investor?
The traditional lending middlemen (banks, credit unions, finance companies, investment managers) are eliminated in a Private Lending scenario. Private Lenders receive the full proceeds of their investments (collateralized by real property) without sacrificing (often significant) portions of their returns to other institutions and organizations. This enables the traditional risk / return results to better favor the investor. Additionally, the Private Lender is relieved from day-to-day involvement in the construction, rehabilitation or management of real estate, thus freeing their time and energy while maximizing their investment return with one or more passive income streams.
How is the Private Lender secured?
A Private Lender is secured by mortgage and note on the property which is serving as the foundation for the transaction. The emphasis in non-traditional lending is on the collateral, therefore measures are taken to protect the interests of the lender in a given property or project.