So, you'd like to become a private lender? You want to make those quick bucks you read about. You know the ones, the stories about real estate investors finding real estate and financing the property for other buyers? You want to be a real estate mogul. Or at the very least, collect a solid return on your investment every month, secured by real estate.
Let's face it, other investments aren't doing so well these days, are they? Have you looked at the rate of return on your one-year CD? What is it, 1.00? But when financing real estate for buyers you can get returns of 5.00 or 6.00 percent or more. And that's for traditional financing. Hard money lenders can command interest rates of 15.00 percent or more plus additional points and fees.
But say you do want to finance a property for someone else, how do you know what rate to charge?
Buyers who need private financing don't qualify for a traditional loan. For any number of reasons but mostly it's because they can't document enough income in order to qualify for a loan. Self-employed borrowers typically fall into this category. They make enough money but they also expense many everyday items, reducing their net income.
For borrowers with good credit but hard to prove income, you can ask what the market will bear. If you're approached by a buyer to finance a property, ask them first what rate they had in mind. If they're asking for a market rate, such as 3.50 percent, move on; there's too much risk associated with that offer when income is an issue. Most however understand their situation and offer you with a rate higher than market. For example, the buyer wants you to finance their purchase and offers a rate of 7.00 percent for two years. The rate is enough to provide you with a solid return, the loan is secured by the home should the borrower default and the two year period gives the buyer time to get their finances in order and document their income. This allows them to refinance into a traditional mortgage คอนโดมือสอง in two years' time.
How much is enough? It's what you and the buyer agree upon, but remember it's your money you're lending; you can be the judge on how much to charge.
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