My last blog post titled Three Little Known Ways to Fund your Real Estate Deals elicited from readers, some probing enquiries about private lenders. I received calls and emails introducing me to various real estate projects. In each instance, the burning question was how to get connected to sources of private funds. Because of this keen interest from readers, I will elaborate on how private lenders, and mortgage brokers that I refer clients to, operate. One of these brokers has an office in Kingston, the other works out of Toronto, Canada. Who are private lenders and what are their terms and conditions for lending money.
Who are Private Lenders?
A loan from a friend, family member or a total stranger is a loan from a private lender. Your friend or family member may grant you a one-time loan, based on your connection with him or her. But some individuals lend money on a regular basis, to people they do not know, solely to earn interest. These lenders make contacts with borrowers, through licensed financial brokers. The broker negotiates the loan terms and arranges all the paper work. This arrangement is efficient, safe and follows established business practices. The onus is left to the borrower, to ensure that his or her project is viable and that repayment is made according to the terms of the agreement.
What Projects are Funded?
Projects that will conclude within the space of 12 months, are ideal for funding. Bridge financing for housing construction, working capital for small businesses or money for renovation are some of the more common types of projects that are of interest to private lenders. One reader needed US$60,000 to put in roads and electricity for a small development until he receives the mortgage proceeds from his financial institution. This project is an example of bridge financing, and would qualify.
Allow time for the loans to be processed. It’s not a “same day” process. Documents have to be signed, property appraised, Certificate of Titles scrutinized and mortgages registered. Once a lender is identified, and the required documents are processed, the funds are disbursed. In any event, we are talking weeks, not months.
What About Collateral and Repayment?
A marketable, insured, residential property is the preferred collateral for loans. You can borrow 100% of the funds you require. Lenders’ fees, vary from lender to lender. Interest rate varies from 10 to 12 percent yearly for Canadian lenders and slightly higher for local lenders. The interest is serviced monthly and the principal paid in full on maturity of the loan in the currency the funds were received. There are no penalties for early payment.
I recommend private lenders as an alternative to financial institution for its flexibility with negotiations, and ease of loan processing. You have to consider however, if your project will meet all the requirements of the lender. For further information, contact me with details of your project or call me and discuss whether this route will suit your immediate needs or whether you should try other financing routes. Click here to send me an email or call me at 876 383 2677.