I am looking for information about investing in real estate with private money. I have heard the term and have seen a definition of it that says it is money that is loaned by a private organization, and not a formal one like a bank. Still seems a bit vague to me. Any clarification would be appreciated.
You have it correct. Private money is money loaned to you by private individuals or groups of individuals that are not banks. These are not typically the Tony Soprano type loan sharking people they are duly regulated groups put together by mortgage brokers that deal in investment real estate. They have to follow local and national regulations in regard to things like collection laws (they don’t break your leg if you don’t pay) but are not bound by the regulations that deal in secondary markets and intuitional strength. That means that they are not prevented from loaning to people with a lot of the baggage that prevents the typical bank from loaning money.
What I suggest is to find a mortgage broker that deals in investment real estate. Remember that they all say the deal in investment real estate. Only deal with the ones that are actually currently actively dealing with investment real estate because those are the only ones that are. Tell him your situation and have him make suggestions on what kind of financing you should have.
Let me tell you what I mean. A friend of mine decided that he wanted to get a hard money loan to buy a house. He went to a company that makes hard money loans. He got the hard money and bought the house. He ended up refinancing the house after the rehab on a 5 year balloon at 8%. When he talked to my mortgage broker he found out that he could have used a temp to perm loan program and he would have spend about 1/4 less on costs and ended up with a 5% mortgage for 30 years. Don’t just decide to do something that you have heard about do what is the best for you. You need to make the decision as to what you want to do but get input from qualified professionals before you decide. These qualified professionals need to be qualified in what you are trying to do…investment grade real estate.