Is private lending the right option for you when buying a property to live in or as an investment? That depends on what you plan on doing with the property long term or past 12 months. Private money and in some areas called hard money is exactly what it sounds like...high interest loans with shorter terms and less paperwork. The loan is guaranteed in most cases by the equity in the property, typically a 60-70% loan to value meaning you will need to bring cash to closing to cover the rest of the down payment plus high loan closing costs typically around 2-3% of the borrowed money plus your normal title charges. This is not a loan for a homeowner long term. It may be an option for purchasing now, building your credit with on time payments then refinancing into a suitable 30 year conventional loan. Typically this loan program is ideal for borrowers with less than steller credit and non-W2 income.
Private loans are ideal for fix and flippers, Investors will borrow at high interest rates hoping to close quicker with limited documents in hopes of getting a better deal, rehabbing the property then selling for a profit and paying off the loan in a 3-4 month time frame. Most private or hard money loans typically do not allow an investor to cash flow positive so ideally also not a long term play but ideal for quickly buying and then value add a property for a higher value then refinance into a conventional loan.
There quite a few hard money lenders out there like Renovo or New Street Capital, competitors to traditional brick and mortar banks and traditional mortgage lender banks. They fill a need for a buyer with limited document to show and lots of potential for the project. It helps to know your numbers, confirm you are able to service the debt, make sure your rehab budget is spot on and read the fine print of the loan before closing. With a little experience and a decent portfolio, you can borrow money at a lower rate over time.
Private Lending is another vehicle for investors to make more on their parked money as opposed to investing in their owner real estate deals or the stock market. In a sense, they are mitigating any risk by betting on your to pay them back.