private loans interest rates

The short answer is that you shouldn’t use private money when it doesn’t make sense, although that answer doesn’t really tell the whole story. To expand on that, there are various ways to figure out if private money will help or not.

First, you need to run the numbers. This will tell you without any emotion whether it will make sense or not (and this applies to most financial transactions). If you are buying a property to rehab and flip, you have to know within a good degree of accuracy how much the entire project will cost and how much you can sell the property for. This applies whether you are buying a house for $50,000 or $5 Million.

If you are looking at buying a home to live in, you still need to run the numbers. If you can’t afford the payments you will have to make until you are able to get a better loan, just walk away. You’re better off not doing the deal than putting your money in and losing the home.

One other thing you will hear a lot in the private money arena is “exit strategy”. Since these loans are shorter term (usually 6 months to 7 years) and most of them have interest only payments, you will need to have a plan of what you are going to do to get out of that loan. Some popular exit strategies are: sell the property, refinance into a conventional loan or pay it off with the sale of another property. There are many others. You need to find the one that fits your situation.

Any way you look at it, every deal should make sense from an analytical view. To go in with emotion as the only thing guiding you can be disastrous. If you can’t figure it out on your own, enlist the help of professionals. Check with real estate agents or loan officers who have experience with the type of transaction you are doing. Even if you have it all figured out on your own and have decided that you have a winning plan, still check with experts to make sure.

As they say, better safe than sorry…

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