Foreclosure Investing through Private Investors
by Paul Wells
One of the ways to get money to buy foreclosures is from private investors. This article discusses why private investors are so important to your foreclosure investing business.
A traditional way to get money for your foreclosure investments is through a hard-money lender. The hard-money lender will generally charge a percentage of the amount borrowed, or what is known as points. Three points would be three percent of the transaction. For example, if you borrowed $100,000, at 3 points, that would be $3000.
Many hard-money lenders charge interest-only on their loans, meaning they get their principal back in full and the way they make their money is on the interest. In a short term proposition this is not a bad scenario because at the beginning of any amortization schedule, the majority of the money paid out of the monthly payment goes to the lending institution. However, I have seen hard money lenders charge as much as 15 points on smaller deals to be able to fund the deal.
As I continued on with my business, and I started doing more and more deals, it become apparent that my number one need was going to be private money but without the points. So I had to put myself in the place of somebody loaning money.
Put yourself in their place. If you wanted to loan money what would you want to know about the person you're loaning money to? Obviously, the number one criteria for someone loaning money is, how sure am I going to be that I am going to get my money back, or even a portion of my money back?
One of the most common problems with young investors is that they have no money to invest or their credit is too shaky to finance things themselves. Most banks seem to want more documentation than any person on earth can provide. The challenge in creative real estate is deals need to be done fast. Banks are notorious for not doing things at a speedy pace, but a molasses pace.
One of the exciting things about being a creative investor is that you can take ideas the average person would never have and build them into great dynasties of real estate wealth. Yes, I said great dynasties. It is potentially possible, if you have the ability to network your way through the private investment community, to add a tremendous amount of zeros to your bank account balance.
One of the true challenges for a young real estate investor is going out and finding a good deal but then not having the particular money in place at the time to pull the trigger. The power of private money can be the answer to your creative real estate financing problems and can help take you to the next level.
About the Author: Paul Wells has been investing in foreclosures full-time for more than 5 years. To ask Paul a question, go to his Foreclosure Investing blog here: http://www.AskPaulWells.com
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