Can you use private money For rentals?

Question

Rick Pozos · Answer

George, stop saying private/specialty lenders together. If it is backed by a hedge fund, if it is a company, if it is owned by Blackrock,if it is the sole business of lending money then it is NOT a PRIVATE lender. That is why people get confused. Aunt Sally, Cousin Bob, my friend from work who has a self directed IRA, and my friend's friend who has some extra cash is a private lender. The companies that you speak of may be investor to investor companies but NOT private lenders.

I hope all the rehabbers, wholesalers, landlords and all the note buyers, developers, and soon to be real estate investors see the difference. Private lender is one thing, specialty lenders are another, HML are another. I am not trying to be difficult, but there is a big distinction.

Rick Pozos · Answer

I don't think anybody is going to share the name of their private money lenders. When I hear "private lender" it usually means just that, PRIVATE.  think of a friend or relative. A true "private lender" will lend to you on the basis that is comfortable to them. There are no regulations that make them only lend for 6 to 12 months. If Aunt Susie has extra money and wants it to work for her for the next five years, she will lend to you for 5 years.

When you are talking about hard money lenders or HML they usually have restrictions on the time that they will lend to you. Yes they are probably six to 12 months. HML and private lenders are two different things. I think too often people interchange the two and use them as the same thing or talk about them as the same thing. They are definitely not the same.

Ryland Taniguchi · Answer

From my direct experience, your opinion here is not necessarily true. Sometimes the lines between private lenders and secondary markets are more blurred than your opinion on the matter.

The private loan fund that I work with raised using a rule 506 private placement and all of the funds come from self-directed IRA holders who are also accredited investors. This fits what we usually refer to as "private money".

To get higher IRR returns, it makes sense to turn over the cash and sell on the mezzanine market to hedge funds, huge private equities, sovereign wealth funds, etc. This is private money and not a specialty lender working with a secondary marketplace.

Anthony Susco · Answer

I agree with @Rick Pozos in that HML are much different than Private Lenders especially in the fact that HML have standard rates/terms that generally do not vary from loan to loan and person to person. Also, if HML use standard loan documents that can generally not be easily modified during the loan as you may be able to do with Private Money (especially friends/family).

@Tajinder Kandola, yes you can use HML to acquire and rehab the rental property and then refinance to a 20-30 year traditional loan once the property is rented (BRR of the BRRRR process)

Ryland Taniguchi · Answer

I get private money at 70% LTV, 30-year fixed, 6%, no seasoning, 600 credit.

The lender does not have enough capital to do this loan for everyone. It is not hard money. Some of the loans are sold off to mezzanine groups, hedge funds, etc so underwriting has to follow some guidelines.

I am partnering with this lender to help raise more money in a rule 506 private placement. 75% of the loans are hard money on fix/flip/develop and 25% is long term 30-year fixed mortgages.

Rigo Medina · Answer

@George Despotopoulos

I learned something new today. Thanks.

George Despotopoulos · Answer

@Rigo Medina. Hard Money loans are usually interest only. There are lenders out there that will give out a loan to first time investors but keep in mind your rate will be much higher and your LTV will be lower to take into account the limited experience.

Rigo Medina · Answer

I am seeing that there are lots of way to get money. Is it common to get an interest only hard money loan or is that only for seasoned investors? That would be great for a flip.

Eric Bilderback · Answer

If you can get private money to cashflow on a rental you loving it.  The issue at least in my market is that hard money people want at least 8% back on their money so how do you cash flow that.  Tomorrow I meeting with a potential hard money lender who wants to give me 8% interest only.  I cannot cashflow on that (as a rental) unless I am going to put money down which defeats the purpose.  So we have come up with a strategy for me to purchase a home and try and breakeven and then she will keep the loan for 18-36 months so I can refi it at a lower rate.  Then it should cashflow nicely.  But it is a little more creative then I would like.

Bhekizwe M. · Answer

interesting and pertinent topic.

Can you use private money For rentals?

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