PRIVATE MONEY AND HARD MONEY HOW DO U USE IT?

Question

Hello BP! I am in the process of working on what I believe can be a potential great deal in Colorado, Wyoming area, but I personally do not have the funding. I am reaching out because I am looking for further knowledge on borrowing money from private and hard money lenders so I am hoping someone can answer my questions.

When it comes to private money or hard money for an apartment or commercial building, multi family or even single family, what is the process you take in acquiring the money to close a deal? How does the structure work. For example, lets say I find a lender and they say yes I will fund your down payment. Then what I do? Do they just send the money to my bank account, do they wright a check or do I go to the bank and say hey I have someone to fund the down payment I just need a loan. Does the bank acquire the down payment and wrap it all together. I do not know the process what so ever I need step by step instructions starting from when I find a deal I want to make an offer on. Or maybe I find the lender before I find the deal, I just don't know. I hope I worded this right, Thanks in advance BP.

Jason Hirko · Answer

@Tyreese Gadlin This is kind of like saying 'assume I can build my own space shuttle - how do I put my helmet on?'But to answer your last question, when you close on the property, the title company handles all of the documents and recordings needed for the sale. In doing so, they collect all the money that will be needed to close from the lenders, after all the documents have been signed, including the loan agreements from the lenders. Any lender who tells you they are going to deposit the money in your bank account is a scam.

Bill S. · Answer

@Tyreese Gadlin so to add to what was also said about the title company and closing. Under your scenario where 100% of the funds come from others, the realistic scenario (if there is one) would be either a partnership or a syndication. You would form an LLC. The LLC would get the main loan from the bank and provide the funds for the down payment, the parties to the LLC would likely personally guarantee the loan as well. The bank would then look at their experience with those kind of deals as part of the process they use to approve the loan. The LLC would then in it's operating agreement assign the equity to the various parties to the deal. The parties to the LLC being the "people" bringing the rest of the $250,000 to the deal and you the deal maker and detail handler. You might look at some of @Joe Fairless's stuff as that is what he does all the time.

Jason Hirko · Answer

@Tyreese Gadlin To be clear, are you talking about getting a hard money loan for the down payment, and conventional bank financing for the main part? If so, most banks won't do this. For that matter, neither will most HMLs

Tyreese Gadlin · Answer

@Bill S. Your saint and Scholar thanks Bill!

Bill S. · Answer

@Tyreese Gadlin depends. Motivated sellers don't know to ask if you have the funds so if you just act like you do then they usually don't ask. Savvy sellers want proof that you can take down the deal. Most people that own multi-unit buildings are going to want to be convinced you can close on the deal. In most cases, money first. That said, there is nothing that attracts money like a great deal. It's sort of up to you. Personally my approach is to find the great deal. Sure I may not be able to close but at least I have something to show potential money people.

Tyreese Gadlin · Answer

@Bill S. the main man! Thank you for your response, that answer is what I was looking for. I know my wording may have been confusing, but you answered it with the detail I was hoping for from BP and why I felt this site was so valuable, especially for newbies like myself. I am trying to take the leap, but I want to do it with knowledge and with as little mistakes as possible. I try and ask any question I have on here because I do not have a personal mentor I look to BP to be my community mentor. 1 more question please, should I make and offer and wait for it to be excepted before looking for private or hard money, or do I find a lender than find a deal? Thanks again Bill!

John Thedford · Answer

You and the lender agree to terms. You take it through a title company and the funds are wired to the title company. I understand your question but think you should consider the feasibility of the transaction. If you can find someone to lend 100% great for you. That would certainly not be typical.

Tyreese Gadlin · Answer

@John Thedford thank you for that opinion, but my question is not if it will work. My question is assuming a lender said yes. How would the process go from there. How do you use a private lender and be able to close the deal.

John Thedford · Answer

Your deal isn't going to work. You are asking a stranger to lend you basically all the money for a deal with no experience and no skin in the game.

Tyreese Gadlin · Answer

@Jason Hirko , thank you for taking to time to respond to my question. And yes that is apart of what I was asking. So to be to clear I will just use some numbers and a fake scenario.I find a deal, $1000000 for a 24 unit apartment and the down payment is going to 250000.But I all I have is earnest money, so I need a either a hard money lender or private lender. Now lets assume I have a lender or lenders that are willing to help.How would the process work next with me and the lender/lenders, in order to get the property closed? Do I even go to the bank? Do I just deal with a lender. How would I receive the money and then be able to use it for the property. What would be the step by step process of when to get a hard money lender or private lender, which i assume is when you can't afford to do it yourself.And once a lender agrees how does the process work from there? Say, I had a just a great deal and you wanted to be my lender what would you do and what would I have to do? Hope this makes more sense.