Cash Flow Benefit To Private Money
“Private Money Can Actually Help To Improve Your Cash Flow”
Private money lending through a private mortgage typically only require interest only payments to service the debt on a monthly basis.
What that means is that during the term of the mortgage, you are only going to be paying the interest incurred each month with no amount of principal repayment required.
While this does not allow you to reduce the balance of the mortgage, it does allow you conserve on the cash flow that otherwise would be required to pay down the mortgage balance.
Depending on the length of amortization payment you were paying on a mortgage that was refinanced by a private mortgage, or the amortization period for a B or C institutional lending option, the monthly saving to cash flow can be considerable.
Even in situations where the amortization period is quite long, the lack of required principal repayment can offset the higher cost of private money making a switch to a private mortgage very close to cash flow neutral.
Too often borrowers get hung up on interest rate without considering cash flow as well.
If you take the example of a new business or expanding business purchasing a commercial property where cash flow may be tight for the next couple of years, a one or two year private mortgage may provide positive cash flow relief as well as time for the the business to get its financial performance in order so that it can qualify for a lower cost bank or institutional mortgage in the near future.
Then, even if the institutional commercial mortgage has a higher monthly debt serving requirement due to amortization period, the business will have had time to plan for it and will be in a more stable cash flow position that will allow repayment of the principal balance.
The same can be true of securing a private second mortgage or a new first mortgage from a private lender to consolidate debt.
The interest only payment required by the private mortgage lender may be considerably lower than the collective payments you were making on all the consolidated debt.
In many cases where mortgage financing is required, cash flow is a very important factor which may effectively be solved through a private mortgage on residential, commercial, or industrial property.
If you’d like to work through a mortgage financing scenario and the related cash flow implications, I suggest that you give me a call and we’ll go through all the math together.