Why Private Loans Are Better Than Bank Loans
As a real estate investor, most of the traditional lending products available to you will either be irrelevant or too cumbersome. In real estate investing, it is not feasible for transactions to take as long as they would as an individual seller purchasing your own home, for example. Some of the different types of creative financing that you might consider include simultaneous closings, land trusts, and short sales. Here is a little bit more about each of these options, as well as their unique features and some of the benefits.
Simultaneous closings are generally a win-win situation for both the seller and the investor borrower. This involves acquiring seller financed notes at closing in exchange for cash financing. In simultaneous closing, the person selling the property creates a note with the buyer for the purchase of the property and then sells the note to a note investor on the day of closing. So in essence, there are two closing dates in a simultaneous closing transaction: the first is the closing day when the closing documents are recorded for the property, and the second involves the seller of the property financing the note to the note investor. These may be better than bank loans because they are faster, even though they do seem like they would take more time.
There a lot of benefits to investing in real estate using land trusts. Land trusts involve an investor holding a property in a trust rather than owning it in their own name. The seller or owner of the property and becomes the trustee of the Trust and the investor becomes the beneficiary. The beneficiary has the right to the proceeds of the property such as tax interest and the property itself, while the trustee is legally responsible for the property and holds the title. This type of transaction structure may be better than bank loans because they do more to protect both buyer and seller from lawsuits. Land trusts are also generally easier to transfer than bank loans, which means that the transactions only take a few hours to a couple of days.
While there are numerous benefits to short sales to both buyer and seller, the primary reason that real estate investors would choose a short sale is generally because they can get a property at a great price. This is usually advantageous to the seller as well because they are able to get out of the property without foreclosing when they can’t find a full price buyer or bank financing in time. When you are looking for financing as a real estate investor, there are many reasons to consider any one of these or other creative financing options.