Private money lenders to front down payment on SFH

[Nathan Burnett]

Hey BP!

Wondering if anyone has used private money lenders for ONLY the down payment on a SFH buy and hold? New to RE investing, have a great opportunity to purchase first SFH. Ran the numbers on BP rental calculator and cashflow/ROI look good! In addition, this market is on the upswing, and home values are increasing steadily (so in addition to solid cashflow, potential appreciation looks good). Offered less than market value by a long shot, secured the contract!

So, back to the original question, what strategies or approaches have BP members used for securing private money lending for a down payment (knowing refinance will produce ability to pull out that down payment in equity in a short amount of time, to pay off private lenders quickly)? Or is it better to shoot for the stars and find a private money lender to front the full purchase price?

Thanks! 

Nate

[Derek Dombeck]

The private money will be in 2nd position on a high LTV deal. That is not really attractive. I would seek out someone with a self directed IRA that doesn't want monthly payments. Either take a loan from them or sell an option to them for some of the equity in the property.

Example.... The house is worth 100k and you can buy it for 80k. The bank will lend 80% of the purchase price. So, you have a 64k loan in 1st position. The IRA gives you 16k for an option to own 20% of the equity at a future date.

5 years goes by and you decide to sell. The property has cash flowed well and is now worth 125k. At closing with your new buyer, The IRA exercises the option simultaneously, thereby giving them 20% of the equity. IRA puts 25k back in their account. A 64% return over 5 years isn't bad. You pocket the rest.

Of course these numbers and scenarios can be whatever you negotiate......

Happy Investing

Derek Dombeck