Financing 1st investment- Hard Money or Private?

[Masud Khan]

First time deal seeker here, looking for BRRRR options in the Washington DC area. For my first deal I'm looking for a single family home needing cosmetic rehab. Because home prices are high this area I won't be able to pay all cash right away. My goal is a purchase for $250k-$350k range (Including rehab costs) in up and coming neighborhoods in the eastern suburbs. My main question is around financing the purchase. I'd like to avoid conventional lending, put 25% down and go with either 1) private/family money or 2) Hard money. Seems like the faster way to close and to stay competitive on good deals.

Since I’m a rookie, would love to hear how you would structure a deal for a private/family member potentially putting up $260k in cash for my deal (75%).  How do you structure a deal to make it enticing for them? Do I approach them like a lender and agree to an interest rate to pay back, based on an amortization schedule?  Or do offer a cash % based on profit after refinancing?  

Alternatively, there is the hard money lender in the event my private money friends don't. Any recommendations you have on working with HML on a first deal would be great. For example how much of the purchase/construction price do they typically finance and what do typical repayment terms look like.

Thanks!

[Blaine Alger]

@Masud Khan

If you have access to it, I would suggest going the private money (family/friend) route. This option is a little less risky and is more flexible than hard money. However, it will be harder to convince someone to lend you since you have no proven track record.

In terms of structuring the deal, you can go the debt route and just give them a 8-10% return and just pay them out once you refinance. or you could go the equity route and just give them 50% of the deal/cashflow once it is complete. 

Each strategy has it own pros/cons, but it just depends on your situation and what you are looking for. 

p.s.Check out this post that was made in the forums yesterday. It give you a better idea on how to structure an equity partnership. 

https://www.biggerpockets.com/topics/879011