Real estate investors keep eyes on the latest changes on the market and turn to alternative investment options accordingly. A private real estate lender is one of these alternative investment options investors can use. They opt for this type of lending because they get more control over the investment. In private lending, the lender lends his own money which a real estate investor uses to fund construction, rehab or commercial projects. Private lending is more beneficial for a real estate investor than a bank or any other traditional lender. These benefits include better control, quick funds, and more options.
After evaluating his needs, a real estate investor finds a private real estate lender and discusses his deal. If the lender approves your application, you will enter the private lender agreement.
Private Lender Agreement
Whether you are dealing with a private lender or a bank, documentation is important. It does not matter what type of loan you are applying for. Some people think that a private lender takes documentation a little less seriously as compared to a bank. While it is true that a private lender is more easygoing, he cannot assess loan risk without proper documentation. Private lender agreement is an important document.
It is important to write everything. All the parties should be made aware of their responsibilities, expectations and rights. Documenting everything helps in avoiding unwanted surprises in the future. One or two years down the line, the lender or the borrower may forget what was discussed when funds were disbursed. A signed private lender agreement is a documented piece of evidence. It also keeps the relationship between the lender and real estate investor intact. Plus, it also safeguards both parties. When it comes to taking some sort of legal action, you don’t want to have any loose end. Anything could happen in the future.
Private lender agreement and other documents are also required at the time of filing taxes and using deductions. When it comes to preparing this agreement, the following are the important details you cannot miss:
- Due date of the payments
- Repercussions if the borrower misses a payment or makes a late payment
- Grace period (if there is any)
- Additional fees (if there are any)
- How to remand payments
While taking a private real estate loan, it is important to ensure that both the borrower and the lender are covered. Also, make sure that all details are to the point. Just like a bank, a private lender also gathers and verifies documents and checks your financial condition and past performance. However, unlike a bank, a private lender processes and approves loans faster. Moreover, he also offers more options. You just have to make sure that you have a good exit strategy and show that you are not a risky borrower.