finite than other sources of fund - ing, meaning that you as a borrower can run into limitations or having to manage multiple private lenders at once. If scaling your business is the goal, private money is likely not a sustainable option as a stand-alone source of funding. Private money also carries additional risk com- pared to other options; because private lenders may not be bound by legal obligations, the lender’s personal preferences and opinions may start to have an impact on your investments. Despite these limita- tions, private money can be a great way to get started or to maintain your current velocity. BANK LOANS The bank is often one of the tra- ditional places people look when in need of a sizable loan, and while it is certainly an option used by many real estate investors, it’s important to know when it is most appropriate
to use a bank loan for your business. One of the biggest upsides to using a conventional bank loan is that it often has much lower interest rates than private or hard money. More- over, it’s often structured over a longer period of time than a short- term loan, meaning you have more time to pay it off. A bank loan is often used by investors who use the BRR- RR (Buy, Rehab, Rent, Refinance, Repeat) or buy-and-hold strategy. Once the project is rehabbed in a BRRRR or buy-and-hold, often with short-term funding, an investor will pay off their bridge note with a lower-rate conventional bank loan. When it comes time to do a cash-out refinance using the BRRRR strate - gy, investors can take out a mort- gage from the bank in order to turn their equity into cash and purchase a new property. The steady stream of income from these rental proper- ties can go towards these long-term mortgage payments at a much lower
interest rate. Similarly, investors who buy-and-hold might use a bank loan to pay off the bridge loan used to secure the property; this typical- ly can enable them to pay a lower rate than the bridge loan, and they then have added a source of passive income from their buy-and-hold. While a bank loan can be an attractive option in some circum- stances, there are quite a few cave - ats to consider before choosing a conventional bank loan to finance your next project. Banks are noto- rious for taking their time when underwriting a deal. In fact, many investors can complete most of their rehab in the time it would have taken them to get funding from the bank. A bank will also have stricter require - ments compared to other methods of financing, such as a credit score threshold, an extensive record of his- torical performance, property con- dition requirements, and extensive administrative paperwork. Moreover,
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