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Financing Private Real Estate

Posted by Chris Peterson | Jun 30, 2015 | 0 Comments

Financing Private Real Estate

Financing Private Real EstateIf you are a private real estate investor, you may for a variety of reasons need to consider an alternative method of financing a purchase. While bank and credit union loans are by far the mainstay of financing real estate, there are options. It is important to consult a College Station real estate attorney when deciding upon an alternative form of lending in order to ensure that your best interests are protected.

Some Alternative Financing Options

Finding an alternative method of financing a private real estate investment requires a degree of “thinking outside the box.” Here are a few possible ways of obtaining a loan, along with advantages/disadvantages:

• Borrowing from a Business Associate: If you have a trustworthy business associate with whom you have worked successfully on lending in the past, this may be a good option. There are pitfalls to such an arrangement, however. For one, the associate may feel a degree of entitlement to the investment that you did not count on. Moreover, if you run into difficulties repaying the loan, this can significantly damage your working relationship. • Borrowing from Friends or Family: While your best friend or parent may be more than willing to assist you with a loan, it is usually unwise to borrow from someone with whom you have a personal relationship. If unforeseen circumstances make it difficult to repay the individual, your relationship could be hurt severely. • “Angel” Investors: Borrowing from this type of investor usually comes with a large premium, and thus can be financially disadvantageous. • Private Investors: Unlike “angel” investors, private investors are not loan sharks, but are legitimate individuals who have a large amount of liquid assets that they put to work through real estate lending. While you are likely to pay a larger interest rate to a private investor than a bank, a loan is generally far easier to obtain, as will be discussed below.

Private Investor Financing

A private investor does not have to report to a board of directors or rely upon stringent company lending policies. The private investor generally has ready money that can be obtained far more quickly than that through a bank. One of the main differences between a bank and private investor is that of focus. While a bank looks mainly at the ability of the borrower to repay the loan, the private investor is more interested in the value of the real estate investment. You should keep in mind, however, that such loans are generally for a far shorter term than a bank mortgage. If you plan to flip the property quickly or feel you will be able to obtain a conventional loan later, this option may well be your best bet.

We Are Here to Help You with Your Real Estate Investment Concerns

If you are a private real estate investor, you may have developed a fair level of understanding about the advantages and pitfalls of various types of private lending. However, you should consider working with a College Station real estate attorney. Call Peterson Law Group today at 979-703-7014 or 936-337-4681.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.


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