Direct Private Money or Brokered Private Money
Posted by Foreclosure Prevention in FinancePrivate money lenders make a living by providing loans and servicing those loans to people who need private money lending (loans secured by real estate.) There are generally two types of private money professionals, direct lenders and brokers. Most professionals in the industry are actually brokers. Some of these people are both direct lenders and brokers. In this case, the individual generally will fund only a couple small loans, or even fractionalized shares of the loans, per year and works as a broker to borrowers for the bulk of the loans that he or she works on.
Choosing if you want to go with a private money broker or a private money lender is much like deciding whether to buy a home with the with the aid of a real estate professional or whether to write an offer directly to the seller, representing yourself in the transaction.
Working Direct With The Decision makers
The upsides of working with a direct private money lender or investor are pretty cut and dry: you save money by cutting out the middle man. Brokers are compensated for their work by charging points on the loan transaction, often times in addition to the points the end investor charges. It is for this reason, the more brokers you have in a given 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 find a private money investor directly who likes you as a borrower and your loan scenario, will be talking with and presenting your project directly to the investor, and will be getting first hand information without having a middle man between you and the money. There are both positives and negatives to this.
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 transaction like you do, no one can explain any items that the investor may have questions about better than you might be able to, and no one is as committed to your business and your private money loan as you are. The other side of the coin, 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 turns you down, except to go back to searching for another direct lender who will fund your particular loan.
Working With a Broker
The upside of working with a broker is also easy to see: a good, hard working, well connected broker will know and have relationships with the direct investors with whom your loan scenario will fit. Working with a broker will give you professional help in packaging your loan, discussing with you various information that will help you decide how much of a loan amount you can obtain, and what kind of terms you may be able to expect. A good broker will help you to package your deal properly, which is extremely important, and send it to the best private money lenders for your particular situation. Working with a private money broker should reduce the stress, legwork and time it will take to complete your transaction.
When you get right down to it, your choice to work with a good private money broker or directly with a hard private money individual depends upon whether or not you have access to an investor directly who lends private money and whether you are comfortable presenting and packaging your loan request without the assistance of a professional.
Entries (RSS)