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Private Money Lending

By providing financing and servicing their loans, private money lenders are in the business of helping those needing private money (financing that is secured by real estate.) Private money lenders can be direct private money investors or simply brokers. Most professionals in the industry are actually brokers. Some private money lenders actually wear two hats, being both brokers and direct lenders. In this scenario, the private money professional typically will fund one or more little loans each year and works as a broker to borrowers for the rest of the loans that come through the door.

Deciding if you would like to work with a private money broker or a private money lender is much like choosing whether to buy real estate with the help of a realtor or whether to simply go it alone without a professional.

Working With Direct Private Money Lenders

The benefits of working with a direct private money lender or investor are pretty straight forward: it will be less expensive if you go directly to the source. Brokers are paid for their work through a portion of the points that are charged on a private money loan. It is for this reason, as you get more brokers lined up in your transaction, the more the cost to you will be for that money (more brokers usually equals more points).

If you have been lucky enough to locate a end of the line, direct investor who is a good match for your project, you will be dealing directly with the end user or investor, and will be getting first hand information without having a middle man between you and the money. This can be both good and bad.

By working with a direct private money investor, you can avoid any communication issues, and this may allow you to close more quickly. After all, no one knows your particular situation in the manner you do, no one else can go over any odd issues better than you might be able to, and no one knows the benefits that the transaction will bring like you do. The down side to this, however, is working with the direct private money investor means that either your loan funds or it doesn’t, there are no other options if the private investor declines your loan, except to go back to calling around for another direct lender that happens to like your particular transaction.

Why You Should Work With a Broker

The benefits of working with a broker rather than a direct investor are also pretty cut and dry: a good, hard working, well connected broker will know and have relationships with the direct investors with whom your loan scenario will fit. A quality broker will help you put toghether your loan package properly, improving the chances that you are able to obtain the funding you need at the terms you desire in the proper amount of time with minimal legwork and stress on your part. Selecting a good, seasoned private money broker will enable you to properly package your deal (which is very important) and send it to the best direct private money lenders for your scenario. Having a good broker will save you time and trouble in financing the transaction and be well worth the slightly higher cost.

When you get right down to it, your decision to work with a good, quality broker or directly with a hard private money investor will likely depend on whether you personally know a direct private money lender and whether you feel comfortable packaging and presenting your funding request directly without professional help.