What Do Private Money Lenders Look For?

by Michael Mikhail | Feb 16, 2021 | Article, Funding, Operations

If you need to acquire funding for your next real estate investment, a private money loan—sometimes referred to as a direct hard money loan—may be the solution for you. There are a few reasons why investors will want to seek out these loans from a private lender like Stratton Equities rather than the conventional financial institution, the primary being that these individuals and organizations usually have fewer restrictions and more liquidity than traditional loans, and grant funding much faster as a result.

With that said, you may be wondering what private money lenders look for to determine loan eligibility. Keep reading to learn more!

What Do Private Money Lenders Look For? (3 Tips for 2021)

Although every private money lender is different and will have varying hard money loan requirements, the following are a few factors they will generally consider to gauge whether investors should receive one. Included are also a few tips for how you can put your best foot forward in these areas in 2021.

1. Your Level of Commitment

Private money lenders want to see that you are just as invested in the property you are pursuing as they will be—and are willing to lose just as much, too. By offering to put down a larger down payment, you can show lenders that you are serious about your investment.

2. The Profitability of the Property

Private lenders look for the potential your prospective property has; they’re seeking a cash-positive or profitable asset. For example: If you are a fix and flip investor and can show you can purchase the home at a low cost, perform few or inexpensive repairs, and make a decent profit from the rehab project, lenders will be more inclined to provide you with the means to do so.

Additionally, if you are not able to flip the property or cannot pay back the loan, the lender will be better able to sell a good property for their money back quickly—versus letting a property without profit potential sit in limbo until someone else is willing to risk purchasing it as-is and at a lower cost.

To show potential lenders that your property can be highly profitable, provide estimated values of homes in the area so lenders can see just how much value you could potentially add. A fiscal representation of the property’s opportunity to increase in value may be enough to convince lenders it is worth the risk, which leads to the final factor private lenders look at:

3. Your Level of Risk

Private money lenders also look at your real estate history and level of investment experience. Do you have a track record of successfully renovating a home for sale or rent? Have you previously invested in property?

If you are new to real estate investment, this does not mean you are any less likely to receive a loan from a private lender. Put down a larger down payment, or show the lender any detailed plans you have for the property; this may include your budget and quotes for future renovations. Showing private lenders how much research you have already put into the property and your plans demonstrate your commitment as a new investor too.

Seize Your Next Opportunity with Stratton Equities

Whether you wish to flip a property or obtain a bridge loan, private money loans are a simple, quick solution for getting the real estate funding you need.

If you have your eyes on a property, why wait for a traditional loan—and risk another investor taking it—when you can close even faster with a private money loan from Stratton Equities? With private money rates ranging from 4.75% to 9.9%, it’s clear to see why Stratton Equities is the top choice for ambitious real estate investors.