January 17th, 2012 | flippers, rehabbers, real estate investors
I am often asked; why in the world would someone want to borrow money at these kinds of rates? Here is the easy answer; they cannot or will not or don't have the time for bank financing.
The longer answer is; most of time people that use private / hard money for financing are looking for fast funding and usually need to correct something before they can qualify either the property or themselves for a bank loan.
Another reason is that they are going to sell the property in a short period of time and banks will not loan if they know its a quick flip. There simply is not enough time involved for the lender to make any money.
In almost all cases the property that is being financed with private money has been purchased at a severe discount and the buyer(s) factor in the cost of private money financing. They are able to secure the property and then do what they need to do to make a profit, either by selling at a profit or bringing the property up to bank lending standards so they can take out Permanente bank financing and rent the property for a positive cash flow.
Of course, these answers are not nearly all inclusive but it does show you that private money is used by regular people like you and I to make fast transactions that can turn a profit.