Everyone needs a loan at some point or another. And while you can often get a run-of-the-mill loan from your local bank, you might not be getting the best interest rates or terms.
If you settle for the first loan option that comes your way, you could end up wasting hundreds, if not thousands of dollars in interest over the life of the loan.
Plus, it can be hard to qualify for a standard loan. Banks often make you jump through many hoops to get a loan.
A better option could be to seek out a private loan. With a private loan, you can actually use the loan for a rental property.
Because rental properties are arguably the best way to invest, it makes sense to start building your portfolio as soon as possible. Wondering how to find the best private loan for investment properties? Keep reading to find out now.
What are Private Loans?
The term “private loan” can mean multiple different things. When it comes to student loans, for example, most people choose to get federal student loans.
These are loan programs created by the government to make it possible for almost anyone to afford a college education. This is important, since the average college tuition is between $10,000 and $35,000 per year, depending on the type of school chosen. The rates are low, however, not everyone may qualify for federal loans.
The other option is private loans for college. These are loans not made for, or backed by the government, but are instead provided by banks, credit unions, or other private organizations. While they offer less favorable terms, such as having to start making payments while still in school, they are still better than nothing.
Some people might look to individuals for private personal loans. These can be used for almost anything, and are generally sought after in order to make it through a tough financial period when cash flow is tight.
Private loan interest rates are generally higher, but without having to jump through the hoops that most traditional lenders require, private loan lenders make it easy to get funded fast.
But one of the best uses for private loans is with rental properties.
Private Loans for Investment Properties
Most people who invest in real estate today use leverage to acquire properties. That means that they are getting a mortgage on the property, just like a homeowner would.
The only issue is that rental property loans are a bit harder to get. Banks and financial institutions are more than happy to make it easy for a new homeowner to get a mortgage. That’s because when times get tough, homeowners are less likely to walk away from the home and the mortgage since their livelihood depends on that property.
Rental properties are different. Because an investor doesn’t live in the property, if things go wrong, they are more likely to walk away from the property and stop making payments. This creates a ton of work for the bank, which needs to sell the property to try to get their money back.
As a result, traditional lenders are more strict when it comes to lending for rental properties. There are many hoops to jump through, high interest rates to deal with, and high down payment requirements.
They want to know that the borrower is serious and isn’t likely to default on the loan. Plus, investors who use traditional mortgages may stop qualifying after obtaining a few mortgages.
So their only hope is getting a private loan for their new investments.
Benefits of Private Loans for Rentals
Private lenders can either be an individual, or a company that specializes in private funding. The benefit of choosing a private lender is that requirements can be relaxed, terms can be favorable, and interest rates can be lower.
Plus, you can be funded much more quickly, making it easier to score a good deal when it’s available, rather than taking many weeks to close on a traditional mortgage.
And a good private lending company will make it easy to fund your entire portfolio rather than a one-off property. You can choose a portfolio loan, which can consolidate all of your properties into one easy-to-manage loan.
You can even refinance and pull out the combined equity of your properties in order to use them for future properties. These are things that traditional lenders simply can’t do.
Finding a Private Loan
Private loans aren’t as difficult to find as you might think. One of the first places to start is in your current network.
There are likely people you know that are sitting on tons of cash and looking for easy ways to invest that will yield above-average returns. Or, at the very least, they want to beat inflation, which averages between one and three percent each year.
If you come to them and offer them a solid interest rate on a loan backed by a rental property, it’s likely the perfect investment option for them. They don’t have to do any work themselves to find or manage a rental property, but they get the security of knowing that the loan they make to you is secured.
The people in your life with this type of excess cash are likely going to be high-income earners, such as doctors, dentists, or business owners. If you like to play golf, you may find a lot of these people in one place every week.
The other private loan option is to work with a company such as lendsimpli.com. They make it easy to apply for and get approved for, private loans with lower than average interest rates.
They specialize in private loans on rental properties, so if growing your portfolio is a priority, this is a website you need to become familiar with.
The Solution to Faster Portfolio Building
Now that you know why a private loan might be beneficial, it’s time for you to weigh the pros and cons. If you are seeking a new investment property, you can certainly try getting a traditional mortgage from your bank.
But if you are maxed out, or simply don’t have the time to wait for their slow underwriting team to approve your mortgage, you can opt for a private loan instead. Private loans are much more scaleable anyways, so the sooner you start using them, the faster you’ll grow.
Looking for more tips like this? Check out other articles on our blog today.
