Why Use Private Money?

Question

Hey All,

Hope your Thanksgiving found you well!

Question for the masses.

Why is private money, from friends and family what I hear is "the way to do it" such a good thing, when I am seeing private money mortgage brokers offer 6-7% loans 30 year fixed? The reason I ask is if you are to borrow from family and friends I thought the norm is about 8-10% in interest but if I can get a loan from a primate money broker for 6-7% with no limits on loans, why should I strive to get money from friends and family and potential have more people to answer to?

Just curious as I have started to make a name for myself on my inner circle and are now starting to get people coming to me who are willing to put up their money with me as they see I am doing fairly well.

Thanks!

Tariq

Kyle J. · Answer

If your friends and family charge 8-10% interest, but on the other hand you can get money from a broker for 6-7%, 30 year fixed, with "no limits on loans" - there really wouldn't be much advantage in your case to using money from friends and family.  However, often times investors can get better rates and close much quicker with less strings attached when using private money from friends/family.  Just go with whatever works best for you.

Jason D. Lewis · Answer

Whether it is friends, family, or hard money lenders, it’s all private and the rates should reflect market conditions. When funds start to dry up, you’ll find less lenders, so rates go up. If cash is readily available in your area, the rates be 3 to 4% higher than the banks. IMO I would always avoid family and friends. If you’re well established, just use their funds and go 50/50 of some deals. I’ve seen that work once trust is established and you’ve shown proof of concept.