Using private lender for a downpayment

[Quincy Jones]

Hello all! I’ve got a really good potential flip I’ve found that’s got great numbers. However the downpayment for the property is where I need the help of a private lender. I am wondering is it possible to find a private lender to loan me the cash for the down payment in return they would get their money back + 20% of the final profits on the home. Im structuring the deal this way because I am young and don’t have lots of experience so I’m trying to find a private lender that would give me a shot and also structure the deal to the point where they can’t say no. Let me know your thoughts!

[Marty Johnston]

@Quincy Jones while both of the above are correct in most circumstances, we have helped many of our investor clients secure 'gap funding' in the form of unsecured personal debt. This means the "no 2nd lien" issue is avoided entirely, as you can utilize unsecured personal debt for next to anything. Some very important things to know however!:

PROS:
- Being unsecured, this is fast funding for this capital - generally 5-7 days
- Can apply for up to two times your annual W-2 income
- Unlimited use of funds (rehab, down money, legal fees, rehab reserves, cash for auction properties etc)
- Re-usable, or payoff (no pre payment penalties)
- No up front fees of any kind, and fees are taken from proceeds, so you dont need liquidity to obtain this capital (but you do need to show consistent W2 income)

CONS:
- Not the cheapest capital. Average rates are between 10-18%. be sure this makes sense for your deal based on the estimate time you expect to hold onto the loan
- Doesn't match well with rental loans - really suited for rehab/strong value add to ensure you can exit the loan without issue - be sure your rehab and ARV numbers work well for 100% financing
- Short-term pay back period - these are 5-yr fully amortizing loans, so be sure the monthly payment is affordable to you (although most lenders won't lend you more than you can handle, as they due a global DTI ratio generally)
- Not all lenders accept Gap Funding, even when in the form of unsecured personal debt make sure your lender accepts this. Many HMLs do, even some of the big names out there, just be sure to clear that up front.

Please be aware, gap funding of any kind can be tremendously costly if you aren't confident with you numbers or the deal. You don't want to over leverage yourself for 100% financing with this type of capital. If you have a "Rich Uncle Joe" - they will always be your best source.

Hope this helps! Shoot me a DM if you want to chat more on this!