Private money with Hard Money

[Branden Jordan]

Sometimes when a deal is structured, both Hard Money Lenders(HMLs) and Private Money Lenders(PMLs) are involved. Let's say, for example, you find a property for a $125K purchase price, and it needs $50k in rehab but will sell for $250K. You have 20% of the purchase price but can't cover the "GAP." You may go to a PML to bring the needed cash to close. Most lenders don't like sourcing funds from more than 1 PML. Two sometimes will work, but three makes the underwriters nervous. The 20% downpayment you have($25K) brings the HML to $75k PLUS costs/fees. Most home lenders won't give loans less than $100k. This is OK because you must borrow the rehab funds and pay for all costs associated with the entry AND exit of said property. Just for easy numbers, let's say the cash needed to purchase is your $25k downpayment PLUS another $25k in costs. You may want to look for a PML if you can handle the project. The PML will want a substantial payout, but think about how the deal would not be possible without them. If they are truly a silent partner, maybe a 50/50 split is too much for the PML. It is on a deal-by-deal basis. It comes down to what each person brings to the deal.

Where do you find PMLs, and how do you approach one with a deal to make it lucrative enough for them to help you fill the GAP?

[Chris Seveney]

@Branden Jordan

Your best bet is to get a lender who does purchase and rehab loans. They will lend 75-90% of acquisition and up to that amount in rehab or more. That is a much better way to go vs having a 1st and 2nd position lender