Why are conventional banks becoming an obsolete funding source for real estate investors? The answers might surprise you.
You don’t have to be in the real estate investing business long before you start hearing investors complain about conventional banks – and extol the virtues of working with private lenders instead. If you automatically assume ‘private lenders’ means tapping your circle of friends and family, you’re mentally going through your list of contacts, trying to imagine who on earth you know that you could ask for house-flipping money.
Stop. You don’t have to do that.
What you DO need to do is to understand the differences between conventional banks and private lenders, and the role each of them play in real estate investing.
Here’s the quick and dirty about conventional banks:
FACT: Conventional Banks Hate Investment Lending.
Sorry banks, but sometimes the truth hurts. The fact is that conventional banks almost always decline to provide investment lending. Why? As far as they’re concerned, the safest loans are to people who will be living in the homes.
FACT: Conventional Banks are Credit-Based Lenders.
They lend money based on the track record of the borrower, and not on the merits of the deal. You must have solid-gold credit before they will lend to you. Many folks starting out in the real estate investing game don’t have perfect credit. But they’re good people trying hard to improve their lives and the lives of their families. Unfortunately, conventional banks don’t look at that. They only look at your credit score and other credit-related factors.
FACT: Conventional Banks Want You to Put Up Your Own Money.
If they finally break down and decide to lend you money, it’s always with the caveat that you MUST put up your own funds, typically asking for 20% down. This means that you must have a “stash of cash” sitting around. And remember, they don’t want you to borrow that down payment money from family, friends, or private lenders. Oh goodness no. You MUST put up your own cash. That way they feel you are more heavily committed to the loan and have more skin in the game. If you have trouble paying and the bank has to foreclose, your 20% is the first money you’ll never see again.
And here’s why real estate investors are flocking to private lenders like Strategic Freedom Funding, instead:
FACT: Asset Based Lenders Less Concerned About Your Credit.
That’s right. If your credit is less than perfect, that’s okay. Asset based lenders like Strategic Federal Funding are far more interested in the benefits of the deal. They know if you have a solid deal it’s very likely to turn a profit. When that happens everyone wins. They make their money back, with interest, and you make a nice healthy profit.
FACT: Asset Based Lenders Will Finance Rehabs. That about says it all as far as typical real estate investors are concerned. Private lenders are simply more flexible, and more willing to consider investment-centric projects.
This is just the tip of the iceberg when it comes to the differences between conventional lenders and private lenders. But it’s something to consider next time you want funding.
If you’ve been listening to the Real Estate Investment Made Easy podcast lately, you’ve heard about Strategic Freedom Funding. If you missed these episodes, you’re in luck – you can tune in now… and make sure you subscribe so you never miss a notification that a new episode has gone live.