Lending Guide: Risks

Are Private Money Lenders Bad?

2018-09-28T18:25:50+00:00 Risks|

Are private money lenders bad?

There is a stigma to private and hard money lending, some of it earned, much of it not. There are often very good reasons a bank won’t touch a deal that a private money lender is willing to look at. There’s more risk involved, the borrower has bad credit, the property location isn’t up to snuff – all of these can lead to bad situations where all parties come out with bruises. It’s a much riskier business to get into than traditional banking. So when we’re asked, “Are private money lenders bad or shady?” the answer is almost always no. Private money lenders are filling a much-needed niche in the finance industry.

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Most private lenders you work with have an excellent reputation. They go above and beyond to help their clients and provide much more personal service than a bank or even credit union. However, private money and hard money lenders tend to be smaller businesses than banks. This means they are less prone to the regulatory scrutiny that comes with big banking. For most private lenders, this won’t matter: they operate under the industry guidelines for best practices, providing more personal service and greater flexibility.

But there are still occasional bad eggs, “fly-by-night” types – whatever you want to call them. Selecting a private money lender requires the same careful due diligence you would us to in selecting any financial adviser. Today there are many more good players than bad, with key is knowing how to find the good ones.

Are private money lenders out to steal my property?

Private money is more expensive and may have more stringent terms due to the higher risk of the loan. However, unless you run into the rare bad egg, private money lenders have no desire to take your property. They earn their living by originating, servicing and often directly financing your loan.

If they take your property by “setting you up to fail” with bad loan terms the income stream stops. Their incentive is to keep you paying – and in the property.

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The objective of Private Money Lending Guide is to be a straightforward, easy-to-use resource that will help you become familiar with private money loan transactions. We want to enable you to know the questions to ask when conducting due diligence. The private and hard money lending industry of today is no longer the Wild West of two decades ago: a cottage industry of professionals has emerged who pride themselves in helping real estate investors get financing on deals that banks won’t touch.