Which is the best option: Private lending or Real estate crowdfunding

You need to have a properly researched plan for raising capital for your real estate project to make it a success. When it comes to financing your real estate project, you can either go for. Private lending or Crowdfunding. So, this article will explain which way should you go for:

Private lending:

In the case of private lending, you take the loan from a high-net-worth private party to raise capital for your real estate project. They charge a very high rate of interest in comparison to banks. Also, the amount of loan you can raise and the interest on the loan also depends on your credibility on the market. Private lenders usually have some staff to help you during the project.

Real estate crowdfunding:

This is the entirely a new concept of lending money for a real estate project wherein multiple investors contribute money for a single loan and share the profits in the ratio of the amount contributed by each one of them.

In this case, crowdfunding companies invite multiple investors to lend money together to a single project. So, if you need the money for your project, you can go to a crowdfunding company and submit the details of their project with them. Once the project is approved by the company, they list it on their website inviting funding so that whosoever is interested in investing in the project can pool in the money with other investors. The money is raised in just a matter of days under crowdfunding.

Some of the crowdfunding companies offer loan at specified rate of interest for all the projects whereas some of them charge a different rate of interest depending upon the risk involved.

Which one to choose:

In most of the cases, it is witnessed that the default rate of interest on the finances raised through crowdfunding is higher than the direct lenders. The rates of interest in the case of crowdfunding are generally higher due to lack of support in times of trouble. When there is any problem faced by you after closing the deal in crowdfunding model, there is no way to work things up with the investors. But, you can contact the private lender any time you want in case of any issue.

Throughout the project, you might have hundreds of questions regarding appraisals, legal issues, etc. that need to be answered. In this case, private lenders are just a phone call away to answer all your queries and provide all their support for successful completion of the project. Even though crowdfunding will help you raise money quickly and simply, but you cannot expect such support from them in future.

In case you need more money for your project, then you can easily reach out to the private lender and make him understand your situation in comparison to the crowdfunding investor.

Private lending is a much better option of funding than crowdfunding. You can build a long-term relationship with a private lender whereas, in the case of crowdfunding, the investor does not even know whom they are investing for.

Getting loan to finance real estate projects

Capital is utmost part of any business. No business can survive without sufficient capital. Even, for a successful real estate business, you need to have sufficient funds so that you can invest in the best deals. Real estate business is very risky, one need to have a detailed plan for the finances to get the business funded.

If you want to raise sufficient finances for your real estate business, then it is very important that first, you invest sufficient capital yourself. Your liquid assets should become part of the capital for your real estate business.

After your own investment, you can start looking for capital from outside. Firstly, make a project for your real estate business. This will help you to know about the specific requirements of your project. Now, you will have an idea of how much capital is needed and the estimated profit you will make with this project. Now, you can discuss your project with the outsiders to raise capital for your project.

Here are the few options by which you can get loans for your real estate project:

 

  • Loans from private investors:

You can take loans from private investors by paying them interest. They will finance your project only if they are satisfied that their money will be returned back in time. The amount of loan that you can raise depends on your relationship with the private lender and your credibility in the market.

So, make sure you always make timely payment of interest and principal amount to maintain your goodwill in the market.

They usually charge a very high rate of interest in comparison to other financial institutions.

  • Personal Loans:

You can also take a personal loan to raise capital for your real estate project at a specified rate of interest from the bank. Also, you can take a loan from the bank at a variable interest rate, from rates ranging from 12 to 22 percent.

  • Mortgage loans:

In the case of a mortgage loan, you need to mortgage the property against the loan. You need to have real property to avail this loan. So, in this case, the interest rates will be slightly less but, if you are not able to timely repay the loan, your property will be taken over and auctioned by the bank to recover the money.

  • Credit cards:

If you are having a credit card with a very high credit limit, then you can use that to fund your real estate project. For this purpose, you should make a good credit history by paying your credit card bills always on time.

For making your real estate project success, you need to do good research and planning before raising the capital for the same.