By providing financing and servicing their loans, private money lenders are in the business of helping those needing private money loans, (loans secured by real estate.) There are generally two types of private money professionals, direct lenders and brokers. Most lenders are actually brokers, placing money for private individuals. A few private money lenders act as both brokers and direct lenders. In this scenario, the financial professional usually funds only a couple small loans, or even fractionalized shares of the loans, per year and works as a broker to those seeking funding for the bulk of the loans that he or she works on.
Deciding whether to go with a private money broker or a private money lender is much like choosing whether to buy a house with the help of a realtor or whether to work directly with the seller and bypass the professionals.
Working With A Direct Lender
The upsides of working directly with a direct private money investor are pretty straight forward: it will cost you less money working with the end investor. Brokers are compensated for their services by charging points on the loan transaction, often times in addition to the points the end investor charges. Therefore, the more brokers you have in a given transaction, the more the money is going to cost you when everything is said and done.
If you have been lucky enough to be working with a end of the line, direct investor who is a good match for your project, you will be dealing directly with the end user or investor, avoiding the run around that so many private money borrowers fall prey to. This can be both good and bad.
By dealing with the direct lender, you can be assured that you are getting your updates and information first hand, and this can allow you to close your transaction with less problems or delays. Simply because no one knows your transaction in the manner you do, no one else can go over any potential negatives to your transaction better than you are able, and no one is as committed to your business and your private money loan as you are. The other side of the coin, however, is working with the direct private money lender means that your loan either funds or it doesn’t, there are no other options if the private lender declines your request, except to go back to looking for another direct lender that happens to like your particular transaction.
Working With a Broker – Benefits
The upside of working with a broker is also easy to see: a good broker will be well seasoned and will have already built the relationships with the direct investors with whom your private money loan will fit, saving you a lot of time and legwork. Working with a broker will give you professional help in packaging your loan, improving the chances that you are able to obtain the loan you need at the rate and term that work for you in the least amount of time without the need for you to stress and continue to look and present your deal to investors you do now know.
Having a good broker will be able to help you properly package your deal (which is very important) and get it to the correct direct private money lenders for your particular scenario. Having a good broker should reduce the stress, legwork and time it will take to complete your transaction.
When you get right down to it, your choice to work with a good, quality broker or directly with a private hard money investor will likely depend on whether or not you personally know a direct private money lender and whether you are prepared to discuss your project directly with the decision makers.
