Private money lenders make a living by providing loans and servicing those loans to people who need private money lending (loans by private individuals, secured by real estate.) There are generally two types of private money professionals, direct lenders and brokers. Most lenders are actually brokers, placing money for private individuals. Some of these people are both direct lenders and brokers. In these cases, the private money lender generally funds one or more little loans each year and plays the role of a broker to borrowers for the rest of the loans that come through the door.
Deciding if you want to work with a private money broker or a private money lender is much like selecting whether to purchase a property with the help of a realtor or whether to simply go it alone without a professional.
Working Direct With The Decision makers
The benefits of working with a direct private money investor or lender are pretty cut and dry: it will be less expensive if you go directly to the source. Brokers are compensated for the work they do by charging points on the private money loan, usually in addition to any points the end lender charges. Due to this, the more brokers that are in a deal, the more the money is going to cost you when everything is said and done.
If you have been lucky enough to find a end of the line, direct investor who is a good match for your project, you will be able to talk with the investor or lender directly, and will be getting first hand information without having a middle man between you and the money. There are both positives and negatives to this.
By dealing with the direct lender, you can be assured that you are getting your updates and information first hand, and this can allow you to close your transaction with less problems or delays. This is due to the fact that no one knows your transaction in the manner you do, no one can go over any extenuating circumstances better than you are able, and no one is as committed to your business and your private money loan as you are. The other side of the coin, on the other hand, is working with the direct private money investor means that your loan either funds or it doesn’t, there are no other options if the private investor declines your loan, except to go back to looking for another direct lender who will fund your particular loan.
Benefits of Working With a Broker
The benefits of working with a broker rather than a direct investor are also pretty cut and dry: a good, hard working, well connected broker will know and have relationships with the direct investors with whom your loan scenario will fit. Having a broker work with you will give you the help you need to properly package your loan, discussing with you various information that will help you decide how much of a loan amount you can obtain, and what kind of terms you may be able to expect. Working with a broker will help you to get through the application process and get it to the most likely private money lenders for your scenario. Working with a private money broker should reduce the stress, legwork and time it will take to complete your transaction.
When looking for private money, your decision to deal with a good, quality broker or directly with a private hard money investor will depend on whether or not you have a relationship with a investor directly and whether you are comfortable presenting and packaging your loan request without the assistance of a professional.