(article by Alan Cowgill - reposted with permission)

I started my business by using banks, savings, credit cards, lines of credit, creative techniques with sellers (like land contracts or lease/options), and partners. But, once I was self-employed, I was concerned that it was going to be harder to get loans to purchase properties.

I had always been unhappy about how long the banks take to get the job done. I had it take 4-1/2 months on a house without a furnace. The bank didn't know if they wanted to make a loan on that kind of house, but that is what my rehab business is all about. Buy 'em ugly, cheap and fix 'em.

Just think, if I would have used a private lender on the above deal, I could have bought, fixed & sold the house and pocketed $20,000 by the time I got to the closing table with the bank.

With private lenders, I have the funds available all the time. When a good deal comes my way, I can grab it because I know the money is waiting for me. While my competitors are scrambling around applying at the bank, I've made an offer and closed the deal. My rehab crew is all over the property like ants before the competition knows what happened. I love having private lenders for my business.

So, a major benefit is SPEED to purchase a property.

Let's look at another major benefit of having private lenders. My first private lender was my Mother. My Dad had passed away in 1989 and Mom had insurance money. She proudly invested it on bank certificates of deposit (CDs). When I became a real estate investor, I learned about finding private lenders and so I talked to Mom about it. She loaned me $5,000 and received 10% interest in return. I paid her monthly just like her bank did with her CDs. She was delighted and so was I.

As my use of private lenders increased, I learned that some of them didn't need monthly payments and so I started to structure my loans so there was no payment until the property is sold.

This is a huge benefit... Think about what this has done to improve my monthly cash flow. Now my Mom will always get monthly payments from me because she is retired and depends on that income BUT anyone who can wait on their money, I'll let the money accrue. So the second major benefit is improved CASH FLOW because you don't have to make monthly mortgage payments but just let the interest accrue.

Alan Cowgill is a speaker, author, and real estate entrepreneur. Alan has bought or sold over 200 investment properties. Alan will be the guest speaker at the September 2010 Monthly Meeting of the Connecticut Real Estate Investors Association, or CTREIA. Alan will also be teaching an all-day real estate seminar with CTREIA on October 2, 2010. For more information, please visit www.ctreia.com.

There certainly are benefits of using private lenders when investing in distressed property. Many banks will balk at lending on a property that needs significant roof, mechanical, plumbing or electrical work. The only problem with finding and securing private funding is that most private lenders will not lend to you without having an established business/success record. So start small with Mom and Dad, then spread outward from there!

hi ya there! this business idea of yours is pretty practical and good! i thought of that too. and yes of course the banks are horrible especially because they take very long , have horrible rates and they can easily take away all your assets. so they are quite tricky! but with private investors, its even more tricky if you dont have parents in the back to back you up,what are you doing then?

Starting up a business is not that easy but your idea is great. I would have to take some of the strategy you have used.

Yep.. those are great reasons to use private Lenders..

My challenge has been finding private Lenders willing to loan at close to market rates. Generally they want several points higher than market, and that's hard to accept. Of course if our administration continues to tighten up the money market, I may have no choice.

Cash is definitely king, at the moment.

Its important to keep in mind that a "Private Lender" can be anyone from "hard money"to uncle Joe that just won the lottery and wants to secure his money!

The biggest bonus is their willingness to lend without accounting for credit scores, however, because of the increased risk they have higher interest rates. For this reason, it is very rarely the best financing for someone who wants to buy and hold, but GREAT for investors like myself who want to get in and out of a deal quickly!!

I too love private money, however it has its time and place. It isn't great for long term use such as holding a property.

I have also discovered how to use other peoples RRSP and 401 money to invest in real estate. It is win-win because they get a higher return on their savings and I have access to lots more money.

If anyone is interested in a free copy of Ken Beaton's Creative Real Estate Investing For Canadians, please email me at. jen.lemieux@bell.net

Jen

www.realestatefirsttimers.com