Private Investments (PIs) are always a good option for a short term investment option. In this BLOG we are going to give you the 101’s on private investing from an investors point of view.
Why Borrowers Go Private?
While there are many other options for borrowers- banks, credit unions, alternate lenders etc. there’s a few reasons why a borrower might need funds outside the traditional banking institutions.
Income Qualification- Some borrowers may have difficulty meeting the income qualifications if they are self employed, commission based or even hourly. PIs offer flexibility with income qualifications as they have the ability to go outside the typical income guidelines.
Credit Score- Many borrowers on the PIs side have flawed credit. This could be do to a number of reasons but the bottom line is they don’t qualify on the bank or alternate side.
How To Determine the Loan Amount?
The maximum most private investors will go to is between 75%-85% loan to value. This means the borrower has enough equity in their property in the event the property needs to be sold due to the borrowers inability to service this loan.
How Much Will It Cost Me?
Actually, it shouldn’t cost you anything. Borrowers pay all the fees and costs. They will be paying the legal fees, appraisal fees, lender fees and sometimes even broker fees.
Who Determines the Interest Rate?
The interest rate is determined by a number of different factors, relative to the risk. The riskier the deal the higher the rate. Some factors to consider would be; “What is the Loan to Value?”, “What is the credit score?”, “Is their income stated or salaried?”. Typical lender rates range from 10%-15%+ again, based on the risk and term.
The Bottom Line
PIs are considered a medium-high risk investment. It is best to partner with an individual who understands how to assess the risk and has the platform to view credit reporting, current liabilities and lending ratios.