There are a lot of reasons a bank might turn you down for a real estate loan. If your personal finances have suffered as a result of bad credit, foreclosure, or bankruptcy, you might not meet the minimum criteria required to secure a new loan or refinance an existing one. The condition and intended use of the property are also taken into account when getting financing from a conventional lender. For example, loans for unoccupied commercial spaces, fixer-uppers, and rental properties are often rejected because they don’t meet federal requirements.
However, if you have equity, you have loan options. Private lenders, personal loans, and investor financing are not subject to the same federal standards as conventional bank loans, so if you or the property you want to purchase don’t qualify, it’s not necessarily the end of the road.
Borrow from Friends or Family
If you have friends or family with cash to spare, they can be a great resource to help you cover the gap or make a profitable real estate investment. Of course, if you prefer not to mix your business with your personal life, this may not be an option you want to explore.
Some of the benefits of borrowing money from friends and family include:
- You have total freedom to negotiate the terms.
- The interest rate is probably lower.
- There are no closing fees.
However, there are a few reasons you might want to avoid taking a loan from somebody with whom you have a personal relationship:
- It can strain friendships and family relationships.
- Asking for money can be uncomfortable.
- There is limited recourse for the lender if you don’t make payments.
Depending on the deal you are trying to finance, there is also the practical reality that you might not have people in your personal circle who have the cash to help finance it.
Borrow from an Individual Investor
If you spot a hot real estate opportunity but don’t have the cash to make it happen, working with an individual investor could help you both make a profit. However, if you don’t have existing relationships with experienced real estate investors, it can be challenging to break through. Borrowing from an individual investor requires a lot of trust and often has a slower underwriting process as the investor delves into every detail of the deal.
Some of the reasons you might consider borrowing from an individual investor include:
- You might be able to get quick cash if you have existing relationships.
- You have some freedom to negotiate the terms.
- You can build long-term relationships to help fund future investments.
Although there are some good reasons to work with investors, there are also some potential drawbacks:
- Building relationships with investors takes time you might not have.
- You might have to give up equity in your business.
- You might have to share decision-making power with investors.
- You might have to share your profits with investors.
Borrow from a Private Lender
If you need fast cash for a real estate deal and don’t already have existing investor relationships or don’t feel comfortable reaching out to friends and family, you have other loan options through private lenders. When you borrow from a private lender, you get many of the benefits of borrowing from an individual investor with fewer disadvantages.
However, not all private lenders secure funding in the same way. If time is of the essence, consider working with a direct private lender. A direct private lender usually operates with a pool of readily available funds. In contrast, other types of private lenders may need to find beneficiaries, which is similar to borrowing from individual investors, and the process may take much longer.
The advantages of borrowing from a private lender include:
- You don’t have to give up equity or control of your business.
- You can work with the lender to determine the terms that make the most sense for your situation.
- You don’t have to ask friends or family for money.
- You don’t have to do the work to build individual relationships with investors.
- You can build long-term relationships with your lender to get loans for multiple properties.
- You work with experts who are knowledgeable and quick to perform.
- Of course, there are a couple of trade-offs to consider when working with a private lender. Interest rates may be higher, and there are some associated fees.
Many borrowers feel that these trade-offs are worth it because they are able to get a quick loan even after being rejected by a conventional lender. In many cases, the profits generated from the real estate deal outweigh the higher interest rates and associated fees, so it’s worth building a relationship with a private lender.
Socotra Capital Is Here to Help
If you’ve got your eye on a great opportunity but can’t get a loan from a conventional lender because either your personal finances or the property conditions don’t qualify, you still have loan options. Socotra Capital is a direct private money lender with a simple and fast approval process that allows you to get cash in a matter of days so you can capitalize on real estate deals when they arise. Contact us today if you’d like to learn more.