Private lenders

[Rikard Lorén]

So, I just want 2 get a thing straight:

If I'm going to buy a real estate, and I lend 20.000 dollars and he/she will get a return on investment ( as usually ?) and intrests, I'm supposed to PAY BACK the 20.000 + Intrest as long as the deal is active ? or does he/she LEND me money for THE INTREST ? Can someone clear it out for me ?

Bcuz when I read Rich dad book, they said that they founded the deposit for the downpayment by investors and then when the building was done, they build made some inprovements and then refinanced it so it increased in value and THEY PAYED OUT ALL THE INVESTORS and THEY GOT Their intrests for the investments AND THEIR DEPOSIT BACK ( correct me if I'm wrong )

So could someone just clearify how the procces goes ? Lender/investor lends out money to me, I later pay back ALL THE MONEY + that they have gotten and will continue get a intrests of their investment every month ?

Cheers!

[J Scott]

Generally speaking, the interest accrues only during the time that you are using the money. If you borrow the money on January 1 and repay the money on June 30, in most cases, you will be paying 6 months worth of interest on the money. You may be paying interest monthly while you have the money or you may be paying it all at the end -- that will depend on what you agree with the lender.

[Aaron Junck]

I agree with @J Scott .

Also depending on your goals and position you may be able to work a deal with an investor to fund the project and split the profits at the end. You would have to show some sort of value to the investor to work a deal like this if you are not fronting any money from your end. It may be where you found the project, will manage the rehab and in turn maybe get a 70/30 split. I cant see most investors willing to do a 50/50 if you have no $$$ in from your end.

[Rikard Lorén]

So basically it's: I lend a sum of his money 20.000 for example and meanwhile/when I'm w8:ing some years 2 refinance, I pay him intrest 2 him, then when I refinance, and pay back the loaned amout, then that's the end of it and it's all mine ? ( basically ? ) Have I got it right ?

But what do they mean in the rich dad books then ? " we finally payed back the investors money and they keept reciving intrests on their investments for life ( i'ts something like that, not the exactly words ) I mean did they have a speciall deal then or something ?

Q 1: is it basically like lending from a bank ? loan an amout, pay intrests, then after a while, I pay back the invested money and I quit paying him intrest ?

Q 2: Did they have a speciall deal then or why do they keep reciving intrest on their investment ?

Thx for the answers above both J Scott & Aaron Junck !

[J Scott]

First, I think you mean that you "borrowed" the money, not "lend" the money.

And yes, you are correct. Typically, once the money is repaid, there is no further obligation to the lender. I don't know the example from Rich Dad, but it sounds like there was a special arrangement.

[Rikard Lorén]

J Scott,

Yea, ofc I mean borrowed ( my bad :p )

Aight, thx so much for the answers ;)

[Rikard Lorén]

So, Ken Mcelroy says this in his book :

( just something he said before the other part )
"When using other peoples money for multifamily investment, you want to be sure the operations for the property can pay for the mortage and still provide a good return for the investors"


"we refinanced the property and with this tax free money, we were able to return all the original equity for the deal to our investors+a substancial profit on that money, all and all our investors made 40% on thier money not including depreciasion and tax savings wich depended on their own situations and the amounts they invested, the investors now have absolutely NO MONEY INVESTED in the propertry and they CONTINUE to recive a %:t of the cash flow, it's free money, that's simply lands in their accounts each month"

*In my current post, I said private lenders, that's not the same thing as OPM, right ?


Question: Is this the way u do it when using OPM / Investors ? ( Other ppls money )

Thx for the answers !

PS! I'm allowed to quote things like texts/audio books like this ? If not, tell me pls!

[J Scott]

OPM just means it's not your money...that includes private lenders.

[Jeff Greenberg]

It sounds like a Ken is referring to an syndicated deal where the investors and not loaning the funds, but becoming equity partners. He is doing a refi with enough money to give back all of the invested funds. The investors still own the same shares and ownership %. They will receive the same % of cashflow and equity.

Equity partners is a more expensive way of using OPM, but unless you have the funds to close on your own it may be your only option. Equity funds are usually used in conjunction with a loan for a majority of the acquisition costs, does not necessarily have to.

An equity position is much more desirable to an investor than providing a straight loan, especially on CRE.

[Rikard Lorén]

Oh, okey J Scott ;)

Aight Jeff Greenberg, thanks for updating me on that one, cheers! :D

[Andy V.]

I read that book (or rather listened to the audiobook) not too long ago and I believe that @Jeff Greenberg is correct.  If I'm remembering correctly, he purchased a property using none of his own money.  In exchange for using 100% investor money, he gave each of his investors part ownership in the property.  That way, when he refinanced the property, he was able to return all of their invested capital with interest, but they still retained their % ownership...and thus their % of the monthly cash flow.

[Bill Gulley]

Geeeez, you mean people pay for that? Use the OPM, let them in as owners, refinance and get them their money out and then say next. Repeat. It does take time, it does take management to bring valuations up, it may take repairs and improvements, but that's just a dead simple as a concept, it's 101, almost like I financed my Kool-Aid stand, no, that was more complicated, got money from mom, let a neighbor kid join in with his money, sold drinks, paid back mom, paid back the neighbor kid and his profit, used his table and chairs and I kept the rest, around the 3rd grade I think. About 5 easy bucks as I recall on a summer day.

I think I've been waaaaay overthinking a book-series on financing.  

Dive into the topics here on BP and put the guru books down, do just what you did, if you don't understand something just ask. Look like members nailed it for the OP. :)