By now you know that EM Investments is working with private investor funds. But why is that and where is the benefit for us? Below you will get an insight into why it makes sense for us as a company to work with private lenders as opposed to working with banks.
1. Speed of finance
In property, speed is often regarded as a main factor in getting a deal or not. As we are buying smelly houses, which usually come with some sort of problem, e.g. a previous sale has fallen through, or the property is about to be repossessed if not sold within the next 4 weeks, then speed of completing the sale is of utmost importance. Just imagine, there is a distressed seller, who needs to sell quickly, due to above reasons and then a buyer comes along who first needs to arrange a mortgage, speak to their bank, etc….by the time the mortgage approval is through, the seller has lost his chain and is now severely distressed. On the other hand, we present our cash offer with finance already lined up, ready to complete in a few weeks, not having to go through a tedious and lengthy mortgage application... Which one do you think gives the buyer more certainty in getting a guaranteed sale in a short time frame?
2. Less bureaucracy
Working with a bank means there’s lots of bureaucracy involved, filling out forms after forms, even though we have already supplied that information in one form or another. Private lenders don’t tend to have that stringent and over complicated process, which makes it significantly more pleasant for us to work with. After we have presented the deal to the private investors and they have supplied some of their information to us, we are good to go. This then ties in with point 1 as a result of not having to wade through pages of documents and thus causing unnecessary delays for the seller.
Yes, you read that right. It's cheaper for us. Let me explain: Our usual rate for working with private lenders ranges between 6-10% p.a. We could get similar rates from development finance companies, however, they usually add on arrangement fees and all other sort of fees which makes their effective APR more around 12-15%. While our interest rates seem to be fairly high when compared to the average rate that people get in banks (they tend to offer around 0.1% currently, which might even get negative very soon), it is a normal rate for us. We know we can generate the returns safely and consistently. Therefore, we are more than happy to pass on the returns we make to our private investors. The happier our lenders, the happier we are.
4. More lending for projects
Generally, a bank lends 75% of the purchase price of a property and only lends towards the refurbishment of a house if it’s a very large development. And that’s usually after the work has been done. So, while they technically lend up to 100% of the whole development incl. refurbishment costs, they do it in arrears, which makes it not very useful to us, since our business model is revolving around smaller scale conversions. With private investors, we can borrow up to 100% of the purchase price and development costs, also on smaller conversions, give the investor security on the asset and complete the project without further hassle having to continuously apply for a further release of funds for the project.
5. Helping real people grow their wealth instead of banks
This point is really an important one for us, as it gives us the ability to help our friends and family to make their savings grow for them. Initially, we did not realise the importance of this, however, after having handled more than £500k worth of private investment, we see what difference it makes when we return funds to someone who has worked hard for that money. It’s infinitely more rewarding to hand back capital and interest to a private individual , who will then go onto a holiday with it, or use it towards buying a nice gift, or helping other family members, than to transfer it to a bank, who just books it as a profit on their balance sheet. Win/win at its best.
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