Private lenders play a critical role in today’s housing market. As properties across the country fell into foreclosure, many of them were left in such a state of disrepair that conventional banks wouldn’t finance them. A private lender, using its ownPrivate Money Investing internal lending guidelines can provide financing for properties that don’t fit in the box that banks have built but can get them prepared to do just that.

 A private loan is typically set up for a relatively short period of time, say anywhere from 90 days for a short pickup to two years or more for longer term, commercial projects. A private lender sets its own interest rates and is often financed by a group of individuals who are offered the opportunity to invest in a project the private lender is making arrangements for. The individual can accept or decline an investment opportunity as they arise.

Interest rates for such projects are well into the double digit range for most projects and helps out the borrower by preparing a property for sale as well as providing the individual investors with solid returns secured by real estate.

For example, a borrower wants to acquire and rehabilitate a duplex. The buy price is $100,000 and the rehabilitation costs are $50,000. The duplex is estimated to sell for $225,000 when completed. The rate might be 18 percent with five points and balloon in six months, a common arrangement. At the end of the six month period and the project has been completed, the private lender disburses both the original investment plus allocated interest to the individual investors.

What happens if the six months is up and the project has not yet been completed? Most private notes carry extension clauses allowing the note to extend beyond the initial period based upon terms set forth in the original note, again with additional interest and fees per the agreement.