How do you pay back people you borrowed from for a deal?

Question

Can someone please explain to me in baby English how you can pay back a private lender - who is a regular person? For instance, I'm interested in multifamilies, buy/hold properties. A hard money company told me I need 20% down but I can raise it from other people. But how do I pay back those people if I am holding the property?

Looking for strategies. Thanks!

Looking for strategies.  Thanks!

Mary Ann · Answer

These are great tips esp the rehab then refinance. Then hold. Did I get the order right?  I didn’t think I could refinance so soon. Is there a time limit? Most hard lenders are 12 months. Thanks again everyone.

George W. · Answer

That is a really good question. I have thought of that idea once before but not really sure if it's the correct aanswer. Maybe you could do a partnership where you sell 25% of your down payment and costs then split everything with your partner.

Ex: 100k loan.

down payment 20% $20,000

Your share  75% $15,000

Partner 25% $5,000

Then split everything cashflow, expensess, etc.

But then id imagine you'd need an LLC and I'm sure partnership is very rough.

Hattie Dizmond · Answer

You have lots of options.  You can treat it like a loan, secured by the property or unsecured.  You have to work out the terms of the loan with your "lenders", then you just make payment on the loan like you would any other loan.  You might also work out terms where you give them an interest in the property, and they get paid from the profits.  Get creative.  It's private money, so any terms you guys work out are possible as long as the numbers work.

Tom S. · Answer

@Mary Ann  Refinancing the property after the rehabbing is the most common way, if you're planning to hold the property.  Ideally you use hardmoney for purchase + rehab funds, and force appreciation of the property. You can then refinance it with a normal bank and pay off the private lender and the HML, and ideally pocket some cash too!