A key advantage is flexibility, which equals more possibilities in today's environment
The following article has been supplied by Nate Zielinski, of RCN Capital.
When it comes to investing in real estate, one of the most important considerations for borrowers is how the deal will be financed. There are countless loan programs, deal variables and types of lenders to consider on every deal. Investors have the opportunity to educate themselves properly and achieve long-term success if they know what is available to them in the industry.
Conventional bank lending always seems like a dependable option, but over the past 15 years, numerous lending shops have opened up across the country and changed the game for real estate investors seeking a loan. One of the avenues that has become accessible to borrowers is known as private lending. Private money loans are loans provided by individuals, groups, or private companies, rather than banks or credit unions. These lenders are often more flexible than traditional institutions and can offer faster funding, making them an attractive option for entrepreneurs and real estate professionals looking to take advantage of lucrative opportunities in a tight market.
For investors looking to get approved easier, close loans faster, expand their portfolio, and even begin working towards closing multiple deals at the same time, private lending can be that solution.
Accessing capital faster
In a market where deals move fast, time is often of the essence. Traditional lending institutions, with their extensive paperwork and approval processes, can take up to a month or longer to process a loan. Private lenders, however, can often close a deal in a matter of a couple weeks, enabling borrowers to capitalize on time-sensitive opportunities. This quick access to funds allows investors to close on properties or fund projects before competitors have a chance to do so.
When an investor is operating in a tight market, it is these stark contrasts that can make private lending so appealing. Private lenders forego requirements such as a year’s worth of bank statements, proof of employment, tax returns, and debt to income ratios which are all key components of qualification for traditional lending and can all lead to lengthening the loan closing process. It’s these margins that can lead to missed opportunities and determine whether an investor can go on to achieve the success they are hoping for in the industry.
Flexibility equals more possibilities in a tight market
One of the key advantages of private money loans is their flexibility. Unlike conventional banks, private lenders are willing to customize loan terms to suit the specific needs of a borrower. This can range from adjusting the interest rate, the prepayment penalty period, or the collateral requirements, private lenders are more open to negotiation, which can be especially helpful when managing multiple projects during periods of a tighter, more competitive market.
It is often the case that when tight markets hit, investors tend to withdraw. Taking less risk can seem like the prudent option and some investors will wait out certain markets. However, with a private lender at their disposal, investors can continue to flourish. With a specialized lender for investment property financing and less competition, it can be during tight markets where successful investors can stand out. Forming a business relationship with an account executive at a private lender is one of the smartest tactics an investor can employ. With an open line of communication and a steady flow of business, the AE will be more flexible and let an investor know about all the options they can take advantage of. Securing a deal in a tight market can be a short-term win but having a property to refinance when the market conditions relax can be a long-term win thanks to an investor taking action and working with a private lender that wants to set them up for success.
Things to remember when funding multiple projects
If you have equity in existing properties, you can use it to secure private money loans for new projects. This strategy allows you to fund multiple developments simultaneously without needing to rely solely on personal savings or other forms of capital. By borrowing against the equity in your current holdings, you can maximize your borrowing capacity and spread your investments across several high-potential projects. Private lenders typically refer to this as a “Cash Out Refinance,” and it is a method that can yield great results in the form of funds for multiple down payments on the ensuing properties.
Relying on industry connections and relationships is another important factor to remember when funding multiple projects at once, especially during tight market conditions. With multiple projects comes more opportunities for potential missteps throughout renovation projects or discussions regarding loan details. Being able to quickly communicate with a network of professionals an investor knows and trusts to problem solve can keep deals alive. Whether it is a general contractor, property manager, tax attorney or insurance agent – investors should always prioritize building out their network for occasions such as these.
Organization and exit strategies are two significant qualities to focus on when trying to manage and close multiple projects at the same time. Organization and having a plan can make an impression on account executives at private lenders which should get most deals started off smoothly. For the investor themselves, there are apps, Excel sheets, voice memos, or old-fashioned pen and paper, but make sure to find what works best and try to stay as organized as possible. Having an exit strategy for these properties in place takes a lot of stress out of the equation for an investor. Having a goal to shoot for at the beginning of the project rather than wondering what to do with it allows for a better environment to complete work on the property and reach the finish line.
Get started today
Investors should be utilizing the contacts in their network today and find a private lender that will collaborate with them to get more deals done. Funding multiple projects simultaneously is a potentially lucrative situation to be in as an investor, but it requires proper planning and execution as well. The team at RCN Capital would be happy to answer any questions as investors look to start 2025 by setting goals and reaching the next level of their career.
