Because of restrictive lending policies, banks are turning away good borrowers. Investors lend money against a property, and as a result, receive very attractive rates of return. The other 50 percent use private investors because they have had credit problems. This is far and away the most important element when analyzing this type of investment.
Most people think that there is only good credit or bad credit.
Excellent credit and good credit are self-explanatory. These type of borrowers usually can show a long track record of consistent good credit. However, due to job loss, illness in the family, divorce or even something as remote as co-signing on a loan that went bad, borrowers find their credit is no longer acceptable to a conventional lender. He purchases four doughnut franchises, only to find out he is not as good at running doughnut franchises as he is at being a dentist. Business failure follows with bankruptcy and the loss of everything he has worked for over the years.