How do you use your hard money lenders??

[Matt Mimnagh]

The impression that I've gathered, mainly from reading about the BRRR method, but also from other places, is that a hard money lender is used to finance the deal and as soon as a refi is possible you get in bed with the bank and the hard money lender is out of the picture. However, a friend/mentor who is a successful real estate investor talked to me last night about another way to structure a deal. Essentially he takes the deal to the lender and asks for a partnership, ie: "You put up the funds, I'll rehab it and manage it and we'll split it all 50/50". He creates an LLC for each individual property where the terms of the partnership are all laid out and everything is shared: cashflow, costs, and equity. Does anyone else structure deals with hard money lenders this way? Why or why not?

[Christopher Brainard]

@Matt Mimnagh

While I haven't used hard money in a very long time, I would never have done the deal as you describe above. Giving up 50% of the profit for financing is very high. In previous flips, I would estimate that 10% - 15% total went to the hard money lender (including points, closing costs, and interest). The lenders that I used to deal with weren't interested in carrying properties, they wanted to get in and out as fast as possible, so their money could be used in other deals. Given the high interest rate, that was my goal as well.

As @Justin Thompson mentioned above, this sounds like this strategy it is more suited for private money, which tend to have more reasonable terms and may hold the property for an extended period of time. Here, I would expect a 50%/50% split (if you are flipping the property together) or a reasonable interest rate (if you are holding the property together).

-Christopher