Private Money in Real Estate and Current Economic Climate

Private Money in Real Estate and Current Economic Climate




The supplies of private money include:

  • Private lender connections are usually built slowly over a long period, one at the time. When I say private lenders I’m talking about private individuals who have their own cash to invest, say $50,000-$300,000 at a time.
  • private lenders associations
  • other groups than can provide quick access to funds.

Before you decide on a lender, be sure they offer repayment plans flexible enough to meet your financial needs both now and in the future. These private individuals will not offer a bank-like credit line to a real estate investor instead the amounts lent are backed by the character.

Ways how can we use a loan from a private lender? Depending on what kind of deals you are working, the use of the funds obtainable to you will vary.

  • If you are flipping the character and maybe doing a at the same time closing (a very short term deal) you will be paying the lender points up front, usually between 1.5 and 2 points depending on the amount of the loan.
  • If in the other hand you are planning on holding on to the character for rental or for your own use, then you will be paying on addition to the points an interest rate of 10 -12% currently.

Timing: Is this a good time to approach your private lender? The current economic climate can have a meaningful impact on the investment- making course of action, particularly in some one with obtainable cash at hand who can have his choice on where it will produce the best results.

Lets look at the different factors:

1. Is there disposable capital obtainable? In the years from 2002 to 2008 the disposable Income per capita grew by $9300.00, more so in the wealthy group. In my own estate the growth of income has been meaningful.

What options the investor has?

  • 10 year Bond yields: currently yielding about 6% in the US, Europe and United Kingdom and already much less in Japan, not very attractive when compared with private mortgage lending of 10-12%.
  • Additionally this is not a good time to tie up cash for long periods. Most experts are advising to use instruments with as short terms as 3 months. ·
  • Mortgage backed Instruments such as Freddie Mack and Fanny Mae? I don’t think so. ·
  • Stock Markets: with the volatility seen in the last year and especially in the last few weeks associated with the doom in the media; investors are reluctant to add any capital in the stock markets. ·
  • Real Estate: the Gross Domestic Product (GDP) elements shows Real Estate in the non-residential sector had a growth in year to year for the second quarter of 5.5%, in the Residential sector a drop of 23.1% creating opportunities to buy residential similarities at considerably reduced prices.

· Private Lending for investments backed by Real Estate is shaping up nicely. If you show your private lender that you are buying, lets say, at about 60 cents on the dollar and you plan on selling at 75-80 cents on the dollar it should make the lender comfortable with the deal.




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