Real estate investors need to look carefully at the ramifications of using certain sources for their money to make certain they remain in control of their business.
That’s the bottom line in a recent article by Alan Cowgill, a nationally known author and real estate investment trainer. Cowgill is a strong proponent of using private lenders to avoid some of the pitfalls of more traditional lenders.
Cowgill said he sees banks as particularly difficult for investors to work with. “Let’s face it, some of us buy some really nasty stuff,” he said. “We buy trash and rehab it and turn it into cash. Banks don’t understand that.”
In the article, Cowgill listed a number of downsides he had found working with banks. Just to mention a few, he noted that if an investor quits his or her job, banks won’t loan money, there are mountains of paperwork, the property has to pre-qualify, closing the deal can take a long time, and the loan will wind up on the investor’s credit report.
When it comes to hard money lenders, Cowgill noted that they are expensive, some lenders require a down payment, and there is only one exit strategy—to sell for cash. Lines of credit require monthly payments, the dollars are limited, and the loans can be called back, cutting the investor off from his or her source of funds. All three of those options also keep the investor from being in control, Cowgill said.
Downsides from a fourth option—using an investor’s own money or credit cards—include the high interest rates on unpaid credit card balances and the possibility that the total dollars available may be very limited.
“I can build strong relationships with private lenders and avoid all those downsides,” Cowgill said. “These relationships are built on trust. With private money, I buy what I want. Today, I am the approval committee.” He urged investors to cultivate private lenders to make sure they are in charge of their own investment strategies.
Alan Cowgill is a speaker, author, and real estate entrepreneur. He is president of Private Lending Made Easy and the founder of Integrity Home Buyers, Inc., a real estate investment company in Springfield, Ohio.