Using private lender's HELOC to fund 100% purchase price.

[Frank Teshima]

Hey everyone, I have found a potential private lender to fund my deals, and i am wanting to use their HELOC to purchase 100% of the property. I am having a hard time trying to figure out how they would make money. I am going to structure the deal at 8% interest for 3 years, with a balloon payment after that. How i am calculating my interest payment every month, is ((.08 x Purchase price)/36 months). At that, the number totally work out for me, but it does not make sense for my lendor. By running the numbers on their side, their bank is charging them a 4.5% interest for the HELOC, which after running numbers, they are basically having to come out of pocket to pay their interest for their HELOC.

Is there anything that i am missing? any recommendations? I would be happy to elaborate on anything that is unclear. Thank you in advance for all the help>

[Jeff S.]

You are charging 8% per year not for 3 years. Thus, the monthly interest rate would be 8%/12 not 8%/36.

If he is paying 4.5% for his money and lending it out at 8%, his net will be 3.5%. You should explain to your lender that he will pay tax on this at his ordinary interest rate. If that is, say, 40% for his combined state and federal rate, he will end up earning a whopping 3.5% x (1-0.4) = 2.1%.

Are you seriously asking someone to gamble his home and accept 100% of the risk, for a 2.1% return on a loan to someone who has no real estate experience?

Sorry to be blunt, @Frank Teshima, but you are taking advantage of this individual. You asked for recommendations.  I strongly recommend you rethink this strategy.