Private
loans are money (say loans) provided by private financers. When all other
options of commercial loans are closed, private loans are only option available
to you. We can say that private loans provide swift and easy access to funds.
Although these loans come with a little higher interest rate as compare to
other loans, the reasons why private loans are favorite of many lenders varies.
These loans require less paper work, are easier to qualify and are based on the
value of the property versus borrower's credit.
According
to Dean
Graziosi,
those who have some profit generating property can qualify for this loan. The
value of the loan depends on the worth of the property you already own. Moreover,
as the loan is provided by private sector, the interest charges are higher than
that charged by government or banks. Mostly people go for this type of loan
when there is no other possible option available.
Dean
Graziosi is an expert realtor. He is serving other aspirants and novice realtors
to achieve success in their professional life. Dean belongs to a broken family.
His father and mother got divorced when he was just three years old. He used to
go to school on a worn out car and always wore old and second hand cloths. His classmates
often made fun of him due to his poor physical appearance.
Dean
express those days with a shine in his eyes. He says that negative
circumstances and negative behaviors never ever affected his firm
determination. From his early childhood, he decided to make his life out of
nothing. At the age of sixteen, he came forward as an excellent and hard
working entrepreneur. With just a few hundred dollars and a loan, he started
his motorcar parts business.
Amid
motor business, he took his first real
estate deal
at the age of 18 and successfully completed the task of renovation of a
run-down apartment building. Since then Dean never looked back. Today he is a
millionaire who conducts live events, seminars and has written a number of
bestselling books. No doubt, he is an inspiration for all those who want to
achieve something from real estate business.
In the
light of Dean's teachings, following are given brief introductory
characteristics of Private loans.
Characteristics of Private Loans:
- The loans are made by private lender.
- These are short-term loans, ranging from 6 months - 3 years.
- Only professional realtors are eligible for these loans.
- The loans are not given on borrower's credit; instead they are given on collective estimate of rehabbed property and barren property.
- On a non-income producing property, 55% loan value is given. Non-income producing property includes raw lands, lots, construction money etc.
- In a low interest rate economy, lenders can expect an interest rate of 12% - 14% on first lien and 16% - 18% on second lien.
Why Realtors Are Willing to Pay
Such High Interest Rates:
Collecting
sum of the interest rates, the borrower is paying a year interest rate of 20%
plus. Sometimes it seems odd, why one should accept such a high interest rate
when there are lower options available. There are various reasons of popularity
of this loan; some of them are shared below.
- The first and foremost reason is the problem of qualification. Often borrowers do not get mortgage loan provided by the lending companies, banks or by government.
- This loan is quickly obtained. Mostly mortgages provided by banks or funding companies take 60 - 90 days in process of clearing of funds. Then there is detailed examination of the borrower, history and financial conditions. Whereas, in private loans, lenders usually take 7 - 10 days. Clearing of the money is done quickly and you can get swift access to the funds.
- Private lenders provide more money as compare to others. Therefore, investor can invest less of his own money.
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