I want to talk about the core difference between private and institutional lenders. An institution is basically a bank or a credit union, which provides financing for different things.
On the other hand, private is more about a group of people working under a private organization, working to help people buy and sell good deals by providing financing. They are not in the hands of the government or any other regional organization, but they work for themselves and use their own money.
Now, we come to two basic types of lenders in the world of real estate:
1. Institutional Lenders
These are the hard money lenders, who are part of and work with a bank or any other federal organization. However, it is quite difficult to get a loan from them because they look at many things including the borrower’s credit history, job, bank statements, etc.
These are just things that concern hard money institutional lenders. They don’t have real estate experience, that’s why; They don’t care much about the value of a property. Even if you have a good offer, they won’t lend unless your credit or employment history is satisfactory.
There is a huge gap between institutional lenders and real estate investors, which is not easy to fill.
2. Private hard money lenders
Private lenders are often real estate investors and therefore understand the needs and demands of a borrower. They are not regulated by any federal agency and therefore have their own lending criteria, which are based on their own understanding of real estate.
Their primary concern is the property, not the borrower’s credit history or bank statement. The motto of private hard money lenders is simple: If you have a good deal in hand, they will finance you, no matter what. But if you make them a shit deal then they won’t finance you even if you have great credit because they think if you make money only they can make a profit.
If you’ve found a big money lender but he or she doesn’t have any real estate investing experience, then they won’t be able to understand your deal. They will always think like a banker.
A true private money lender is one who can help you evaluate the deal and provide proper direction and financing if you find a good deal. But if the deal is bad, they’ll tell you right away. Before rehabbing a property, they know what its resale value would be, due to their extensive experience.
The basic difference between institutional hard money lenders and private hard money lenders is that institutional lenders try to keep everything in place and in perfect order. They want to have all the numbers and the amount of profit they would be making. They completely ignore the main asset, that is, the property.
While private lenders use their own background and experience to figure out what to expect. They are not trying to sell the newspaper or recapitalize. They just look at the property and see if it is worthy enough of rehab or not.
In the end, they just want to make a good profit together with the borrower. If someone goes to them with a good deal, they will finance it. Some of them only finance the property, while others also finance repairs as long as they can see a good return on investment.
