Walk me through a private lending scenario

[Eleena de Lisser]

I've been reading up on private lending and I understand how it works for wholesaling and fix/flipping. (Find private lender, use funds to control, acquire and/or rehab property and then pay off lender with interest after fix and flip.)

My question is using private money for buy and hold. You find a private lender, create terms that are mutually beneficial and then pay a mortgage note for X number of years? I know each private lending arrangement is different, but wouldn't most private lenders be uncomfortable/unwilling agreeing to a 15+year, (low) fixed rate mortgage?

What is typically the exit strategy to getting the private lender paid back in full in a buy and hold situation? Hope for appreciation and do a cash-out refi with a commercial/retail bank within a few years?

I know arrangements with private lenders will vary tremendously, but what would you do if a private lender is willing to lend the full amount of money you require to do a buy and hold transaction, but doesn't want his/her money tied up for longer than 3 to 5 years?

Also, when getting private money to purchase a buy and hold rental, do you borrow extra (and roll that into the total loan amount) to initially fund the property's maintenance reserves?

Thanks in advance for any answers/explanation.

[Jonathan Sher]

You will most likely only get a rate locked in for 3-5 years. This reduces interest rate risk to the lender. They will lock the rate for 3-5 and your amortization will be 15-20 usually. At the end of that 3-5 years, they might refinance with you at a rate that is currently acceptable or you might be on the hook to find someone else to finance it for you.

The last part of your question is really going to depend on how the private lender works. If they are going to require an appraisal and you put money down, it will be hard borrow extra for reserves or repairs. Some private lenders might loan you more on the ARV (after repair value) if you can prove it.