Real Estate Money: Where to Get It in the Post-Credit Bubble Market Place?
Real estate money and access to quick cash is the key for any real estate investor. Having cash to buy properties is the life blood of your investment business. But where does this money come from in the post-credit bubble market place? There are traditional sources such as banks and hard money lenders but in the new post credit bubble the best option is private lending. Real estate investors are looking for better financing options as the old traditional sources of money are becoming more difficult to find and qualify for than in the past.
Here is a quick look at some of the traditional sources of real estate capital and the pros and cons of each and a new and better source of money in this market place.
Mortgages Loans: Most real estate investor became very accustom to borrowing money from the local bank or saving & loans. Yet in the post-bubble market place these sources of real estate money have all but dried up. Banks are no longer offering subprime loans or no-doc loans. Even when they do loans they want excellent credit scores over 700, sizable down payments in the 30% to 40% range and quality properties with little or no rehab involved. This isn't always possible for real estate investor and especial if you are just starting out as a new investor. These loans are also very costly for investor with high interest rates and lots of closing cost. Not only do you need the 30% to 40% down but the closing cost can be several thousands dollars and dramatically reduce your profit upon sale of the property.
Hard Money Lenders: Hard money lenders were very popular for real estate money despite the high cost. However even hard money lenders are having problems getting money to lend in the post-credit bubble and as a result many markets no long have hard money lenders in business. Hard money loans have always had several drawbacks including only lending to about 65% of the home's value and you have to come up with the balance of the money. In addition, the fees to obtain these hard money loans are a crushing at 5 to 10 points up front and generally 5 points on the back end. The net effect of all these coast is real estate money that will cost in the 20%+ range and you still have to come out of pocket for almost 1/3 of the purchase and rehab costs.
Private Lenders: Private lending, through individuals and not through banks, is a much better option for real estate money in this new market place. Private lenders are willing to negotiate with you for both the terms and amount of the loan that will both fit the deal and there needs. This way both parties are getting what they want and need out of the lending transaction.
Private lenders can do either as a first mortgage loan where they put they put in senior dollars or second mortgage where they are subordinate (behind) another bank or other lender. The cost of private lending is very low as they are almost no closing cost and the interest rates are in the 9% to 15% range with no back-end fees.
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