Private Lending Mechanics
Realtor · Austin, TX · Member since 2018 · 154 posts · 82 votes
When do private lenders actually get paid? Say I want to buy a house that's worth 45000 to buy and hold. I need a 9000 dollar down payment. Let's say I get that from a private lender. When would they actually get that money back? It wouldn't be for a while so why would they give me that money? I understand why they would carry the mortgage. Even then, would they give me the whole 45,000 cash? My last question is whether or not these private money websites that accrue investors that lend nationwide are worth my time?
Private money will typically get paid either monthly or upon selling/refinancing depending on the strategy you take and what your agreement is with them. So if you are looking to get a private loan to help you purchase a flip then they would likely get paid when you sell that property. If you are looking to get money to purchase a rental then they would likely set up a monthly payment kinda like having a second mortgage or HELOC. The best person to talk to about actual terms and repayment would be a private lender as they are all different and may have different rates and terms based on the plan and the property itself.
Private money will typically get paid either monthly or upon selling/refinancing depending on the strategy you take and what your agreement is with them. So if you are looking to get a private loan to help you purchase a flip then they would likely get paid when you sell that property. If you are looking to get money to purchase a rental then they would likely set up a monthly payment kinda like having a second mortgage or HELOC. The best person to talk to about actual terms and repayment would be a private lender as they are all different and may have different rates and terms based on the plan and the property itself.
@Timothy Douglas Echoing what Michael said above, each private lender is different on what they want. I've done a number of different deals as a borrower. Typically it's interest only and then the whole amount due back in 1-3 years (for the friend I was working with). So in your 45k example, if it was 12% interest, that's 1% per month, or $450 per month for 3 years, and the $45k due back in 3 years.
I also did another one where it was $90k lent to me, and $110k due back in one year.
I can't comment on the nationwide stuff, in general private lenders are friends / family / business associates that you personally know. Hope that helps.
- Tom
Private money will typically get paid either monthly or upon selling/refinancing depending on the strategy you take and what your agreement is with them. So if you are looking to get a private loan to help you purchase a flip then they would likely get paid when you sell that property. If you are looking to get money to purchase a rental then they would likely set up a monthly payment kinda like having a second mortgage or HELOC. The best person to talk to about actual terms and repayment would be a private lender as they are all different and may have different rates and terms based on the plan and the property itself.
Gotcha, thanks!
@Timothy Douglas Echoing what Michael said above, each private lender is different on what they want. I've done a number of different deals as a borrower. Typically it's interest only and then the whole amount due back in 1-3 years (for the friend I was working with). So in your 45k example, if it was 12% interest, that's 1% per month, or $450 per month for 3 years, and the $45k due back in 3 years.
I also did another one where it was $90k lent to me, and $110k due back in one year.
I can't comment on the nationwide stuff, in general private lenders are friends / family / business associates that you personally know. Hope that helps.
- Tom
I feel like you need a really good deal to make those numbers work. Thanks for the advice though. Also, I don't really have wealthy friends... How would you go about finding them? I really just need Real Estate to be my full-time gig which will happen in about 400 days
@Timothy Douglas IMO - It's hard to find true private money (family and friends) and you definitely have to network a lot.
That said, I found it much easier to have a good W2 job and do RE on the side, buying 1-2 properties per year, every year. Far easier to get loans that way. Remember even private money can be 6-10% and shorter term. Bank money is 3.5% fixed for 30 years, you'll never get better terms than that!
When do private lenders actually get paid? Say I want to buy a house that's worth 45000 to buy and hold. I need a 9000 dollar down payment. Let's say I get that from a private lender. When would they actually get that money back? It wouldn't be for a while so why would they give me that money? I understand why they would carry the mortgage. Even then, would they give me the whole 45,000 cash? My last question is whether or not these private money websites that accrue investors that lend nationwide are worth my time?
Hey Timothy, typically the lender will wire money to the title/escrow company to close the deal, so they won't give you a wad of cash. Also, there will probably be a balloon payment due in 3-5 years, or whatever the terms are. That's when the lender gets their money back. I tried those private money websites a few years ago and almost all were dead leads. Best to tap you family circle and network with other investors. All the best.
When do private lenders actually get paid? Say I want to buy a house that's worth 45000 to buy and hold. I need a 9000 dollar down payment. Let's say I get that from a private lender. When would they actually get that money back? It wouldn't be for a while so why would they give me that money? I understand why they would carry the mortgage. Even then, would they give me the whole 45,000 cash? My last question is whether or not these private money websites that accrue investors that lend nationwide are worth my time?
Hey Timothy, typically the lender will wire money to the title/escrow company to close the deal, so they won't give you a wad of cash. Also, there will probably be a balloon payment due in 3-5 years, or whatever the terms are. That's when the lender gets their money back. I tried those private money websites a few years ago and almost all were dead leads. Best to tap you family circle and network with other investors. All the best.
Thank you Michael!
@Timothy Douglas How are you referring to private lenders? Actual individuals you are talking with or more of soft-money hard-money shops for doing your deals? It really depends, they can charge an origination point on the front, they can charge an exit fee on the back and then they receive monthly IO payments from you during the deal, unless you wrap the 6 months payments into the loan itself and it's due at payoff (I doubt an individual private investor will do it, but there are many professional shops that will do this). There are many ways for them to get paid, they like their money.
@Timothy Douglas How are you referring to private lenders? Actual individuals you are talking with or more of soft-money hard-money shops for doing your deals? It really depends, they can charge an origination point on the front, they can charge an exit fee on the back and then they receive monthly IO payments from you during the deal, unless you wrap the 6 months payments into the loan itself and it's due at payoff (I doubt an individual private investor will do it, but there are many professional shops that will do this). There are many ways for them to get paid, they like their money.
I meant both. Honestly the more I’ve thought about this and talked about it, the more I’ve learned that every lender is unique! So thanks for furthering that insight.