All Forum Posts by: Reggie Nworie

Thank you for the votes Clint and Paul! I'm glad y'all found the article to be valuable. 

Introduction:

In the world of investment real estate, there are many different ways to finance a fix-n-flip or fix-to-rent project. Those who choose to utilize the benefits of private money know that there are multiple ways to repay their interest only loans. In this article, we will discuss the three most popular repayment methods, how they are different, and in which situations one may be better than another.

Part 1 - Dutch Repayment Schedule:

This is the most common method of repayment. In a Dutch repayment plan, the borrower pays a monthly interest only payment based on the loan amount that they agreed to borrow. For example, if you have a $100,000 loan and your interest rate is 10%, your Dutch repayment schedule will be based on ($100,000 x 10%) / 12 = $833.33 per month.

The key benefit to a Dutch repayment schedule is that they are often easier to find, the approval requirements are lenient, they tend to close quickly, and the calculation is very straight forward easy to keep up with. Your payment is the same every month and the lender will collect more interest in this format because the borrower is paying interest on the entire loan amount from day one.

The key downside to this repayment schedule is that the borrower is paying interest every month, based on the entire loan amount (including the amount being held in reserve for rehab draws), even if no draws have been taken yet.

Part 2 - Non-Dutch Repayment Schedule:

The key difference between Dutch and Non-Dutch is that with a non-Dutch repayment schedule, the borrower pays monthly interest based on the portion of the loan that has been drawn. If we use our example from earlier of a $100,000 loan, where $70,000 goes toward the purchase price and $30,000 is being held in reserve for renovations, the first month’s payment would be based on the $70,000 that went toward the purchase. The interest on the remaining $30,000 would be assessed as the borrower uses holdback funds from the rehab budget. In this example, the first month’s payment on a non-Dutch repayment schedule would be ($70,000 x 10%) / 12 = $583.33. The monthly payment would increase each month, based on the amount that was drawn for renovations. The maximum monthly payment (after all rehab funds have been drawn) would be $833.33.

The benefit to using a non-Dutch repayment schedule is that the borrower does not have to begin repayments at $833.33 right away and as a result, can save money on interest payments over the loan term.

The downside to this repayment schedule is that the lender makes less interest. Some lenders do not offer this option for that reason.

Part 3 - No Monthly Payment Program:

The third option we will cover in this article is the No Monthly Payment Program. This option is different from the first two because (as the name suggests) the borrower will not make monthly interest payments at all. Instead, interest is accrued into the loan balance and paid at maturity (when the borrower either sells the property or refinances the loan). This option eliminates the need to make interest payments each month.

The obvious benefit of this option is the increased cash flow. If you do not have to make a payment each month, that alleviates the consistent outflow of cash and enables the borrower to focus on the renovations and completing the project as efficiently as possible. Another benefit of this option is that there is no additional liquidity requirement at closing. Normally, borrowers are required to show liquidity at closing to ensure they can service the debt, but since the debt service is coming from the escrow holdback for monthly payments, the borrower only needs to have enough cash to close. This option is ideal for converting to an income property because the (when the renovations are complete, and the property is stabilized) the borrower can begin receiving income from the property before regular mortgage payments are due. This further ensures that the borrower will be able to enjoy positive cash flow on the property sooner. Aside from the traditional long-term rental, the borrower could opt for a short-term rental income strategy instead, in order to generate higher cash flow in a peak period and then sell the property before the 12-month loan term expires. This option also serves as a benefit to the lender (and potentially the broker) because origination is based on the total loan amount. The commission on the transaction is increased by including the escrow account specifically designated for covering the monthly payments into the total loan amount.

The key drawback to this strategy is (much like the Dutch repayment schedule) that the interest will be calculated based on the total loan amount. Even though the borrower is not paying interest payments each month, interest is still accruing based on the total loan amount from day one (including the portion that is held back for renovations).

Part 4 – Examples: Let’s look at two examples to help illustrate the point.

Example 1: $250,000 towards purchase, $50,000 towards rehab.

- Dutch Repayment Schedule: ($300,000 x 10%) / 12 = $2,500/mo. The total interest paid would be $30,000 if the loan is outstanding for 12 months. The origination would be based on a $300,000 loan amount.

     o After 12 months, the payoff plus interest paid would be $330,000.

- Non-Dutch Repayment Schedule: ($250,000 x 10) / 12 = $2,083.33in the 1st month. If the project is complete in 10 months and sold in 12 months, the example repayment schedule would be at $5,000 draw increments. The monthly payments would increase incrementally until month 11 when it would reach the max of $2,500/mo. The origination would be based on a $300,000 loan amount.

     o After 12 months, the payoff plus interest paid would be $327,708.33.

- No Monthly Payment Program: ($250,000 for purchase, $50,000 for rehab, and $30,000 for monthly payment escrow). The origination would be based on a $330,000 loan amount.

     o After 12 months, the payoff plus interest accrued would be $330,000

In Example 1, the borrower may decide that the increased cash flow with No Monthly Payments and the ability to start receiving income (perhaps around $2,500 to $3,000/month) on the property without having to make mortgage payments could far out way the savings of $2,291.67 over the non-Dutch schedule. If the property generates income for even 1 month, that only further makes the case for the No Monthly Payment option, in this example.

Example 2: $50,000 towards purchase, $250,000 towards construction.

- Dutch Repayment Schedule: ($300,000 x 10%) / 12 = $2,500/mo. The total interest paid would be $30,000. The origination would be based on a $300,000 loan amount. 

     o After 12 months, the payoff plus interest paid would be $330,000.

- Non-Dutch Repayment Schedule: ($50,000 x 10%) / 12 = $416.67 in the first month. We will assume 10 construction draws at a rate of $25,000 per draw. The monthly payments would increase incrementally until month 11 when it would reach the max of $2,500/mo. Your total interest paid would be $18,541.67. 

     o After 12 months, the payoff plus interest paid would be $318,541.67.

- No Monthly Payment Program: ($50,000 for purchase, $150,000 for rehab, and $30,000 for monthly payment escrow). The origination would be based on a $330,000 loan amount.

     o After 12 months, the payoff with interest accrued would be $330,000

In Example 2, there is a significant savings ($11,458.33) with the non-Dutch option over both the No Monthly Payment and the Dutch repayment option. This is because the borrower is not paying interest on the $250,000 construction budget from day one.

Summary: Which option is best for my project?

There are many factors to consider when answering the question of which option is "best". The answer largely depends on the type of investment strategy you will employ, your current liquidity situation, and the size of your renovation budget. Things like your available liquidity, your estimated time horizon for project completion, and your intent to turn the property into an income property (either short-term or long-term) could all impact your decision. Generally, a larger renovation budget tends to lean towards a non-Dutch repayment schedule. If you have a smaller renovation budget and you intend to utilize the BRRR method (or turn the property into an income property rather than selling it), the No Monthly Payment option tends to be a better solution because of the increased cash flow. A Ground Up Construction project, however, would be an ideal situation for a non-Dutch schedule. On the other hand, if you only have a $15,000 renovation budget and you plan to put tenants into the property in 3 months or less, a No Monthly Payment option would make more sense for maximizing monthly cash flow.

Look for lenders who provide multiple repayment options. The increased flexibility gives you more control and enables you to select which repayment option best fits your needs. We hope you found this article to be helpful and informative. If you like the content, be sure to let us know. Happy investing!

Introduction: Real Estate Investing can be a lucrative venture, but deciding whether to go solo or form a partnership is a crucial decision that requires careful consideration. In this blog, we will explore the advantages and disadvantages of solo investing versus investing as a partnership in the context of a Fix and Flip, a BRRR strategy, or a short term rental (like Airbnb or Vrbo).

Solo Investing - Advantages:

1. Full Control: Solo investors have complete control over the decision-making processes. As a result, a solo investor is able to be nimble and respond quickly to opportunities. Without the need for consensus, a solo investor can take decisive actions as soon as an opportunity presents itself.

2. Flexibility: Operating solo provides flexibility in terms of project selection, timelines, and exit strategies. The solo investor can adapt to changes swiftly and/or pivot to a completely different strategy if market conditions change. One example of this arose in 2022 when the Fed raised rates multiple times in just a few months. Some investors who acquired investment properties with the intention to flip made a pivot to rental income when they found that they were not able to sell the properties at a favorable price because higher rates priced out many of their potential buyers.

3. Profit Retention: All profits go to the solo investor, leading to a straightforward financial structure and potentially higher returns on their investments.

Solo Investing - Disadvantages:

1. Limited Resources: Solo investors may face challenges in terms of financial resources, limiting the number and scale of projects they can undertake. Prior to 2008, the market was saturated with “no money down” schemes that required little-to-no capital expenditures from the borrower. Today, with higher rates and tighter spreads, lenders expect borrowers to have liquidity. Considering credit and experience, liquidity requirements for some investors may be higher than for others.

2. Skill Constraints: Individuals may lack certain skills required for various aspects of real estate investment, such as construction management or legal expertise. Relationships with licensed trades may be limited due to a lack of experience, and familiarity with things like permitting, property management, and short-term occupancy taxes could be a hinderance. Additionally, limited experience can also result in lower leverage, higher rates, lower LTV and ARV caps, and fewer options and features that are not available to investors with less experience.

3. Workload: Solo investors bear the entire workload, which can include initial acquisition, property renovation, property management, and refinancing or reselling the property. Carrying the entire workload can be challenging and time-consuming. Some have reported that they found it to be overwhelming.

Partnership Investing – Advantages:

1. Diverse Skill Set: Partnerships allow for the pooling of skills and expertise. One partner may excel in finding deals, while another may have strong construction management skills. One partner may have more cash available to invest, while another may have an electrician license and relationships in the county permitting office. One partner may have great credit while the other partner has access to construction materials at rock bottom prices. Taking advantage of synergies can lead to the whole being greater than the sum of its parts.

2. Shared Features: Partnerships provide access to a larger pool of financial resources and more features and benefits to both partners. Some projects have minimum experience requirements. Some features (like Advanced Draws and higher LTVs) may only be available to investors who have more experience. Partnering with an experienced investor can enable a less experienced investor to take advantage of features that they otherwise would not qualify for. This enables the pursuit of larger projects, multiple projects simultaneously, and/or access to different types of projects and features.

3. Risk Mitigation: Risk is shared among partners, reducing the financial burden on individuals in case a project doesn't yield the expected returns or in the event that the costs for a project end up higher than initially planned.

Investing as a Partnership – Disadvantages:

1. Decision-Making Process: Partnerships require consensus on major decisions, potentially slowing down the decision-making process. Typically, the more people involved in the partnership, the longer it will take for the deal to be reviewed and a consensus to be reached.

2. Profit Sharing: Profits are distributed among partners, which might result in a lower individual return compared to solo investing.

3. Conflict Resolution: Differences in opinions or conflicting interests among partners may lead to challenges in resolving disputes.

Conclusion: The choice between solo investing and forming a partnership for real estate investment purposes really depends on individual preferences, experience, risk tolerance, and access to resources. Solo investing offers autonomy and direct profit retention but comes with limited resources and a heavy workload. On the other hand, partnerships provide a diversified skill set, shared resources, and risk mitigation but require effective communication and conflict resolution. Ultimately, investors must carefully weigh the pros and cons to determine the approach that aligns with their goals and preferences.

Hello Robert, I will send you a PM shortly. I look forward to connecting with you. Thank you.

Nworie Capital has recently engaged a capital partner who has $4.5B available to lend for horizontal development and vertical construction of residential real estate in the United States. Nworie Capital was allotted $500M with a stated goal of focusing on the Texas market. 

We are currently seeking experienced builders and developers throughout the state of Texas who have large construction projects that need funding. Recent building experience will determine loan approval. If we can successfully lend the original $500M, Nworie Capital will be allotted an additional $500M to lend. While each allotment can technically be used throughout the United States, Nworie Capital has chosen to focus a majority of the funds in the state of Texas in order to spur economic growth locally. Nworie Capital is based in San Antonio, TX.

If you have experience building gated communities, large subdivisions, condos, townhomes, single family homes, or 2–4-unit residential properties, call us. We would like to speak with you. To be clear, this lending program is not for Fix-n-Flippers. This is for builders and developers who have strong portfolios of recent ground up construction experience. Additionally, this is not a 100% financing program, you will be required to have some equity in the asset. Liquidity requirements will apply.

If you have a project you would like to get funded, send us your executive summary and portfolio of recent work.

We are eager to invest in the best projects in Texas!

Hi @Jordan Fair, 

The answer will likely be a little different for each lender because everyone's guidelines around that are a little different. For a cash out DSCR refi, we do not have a minimum seasoning period if you have completed renovations on the property. Feel free to DM me if you want to discuss your scenario in detail.

Introduction

One of the keys to success in real estate investing is the ability to scale your business efficiently. While using your own cash might seem like a secure approach, alternative financing options like private lending can offer some strategic advantages. In this blog, we'll explore the benefits of transitioning from cash investments to private lending and how it can empower cash buyers to take their real estate ventures to new heights.

1. Private Lending Increases Your Buying Power

To be clear, we are not talking about a 100% financing gimmick. Private money lenders expect investors to have some interest in the asset. Typically, around 20%, although in some cases it could be as low as 10% or as high as 30%. The key is that the leverage that private lending provides enables investors to buy more properties, more quickly. That increased buying power can be expressed in terms of higher value properties or more properties in a shorter period of time. Private lending provides additional buying power which can be invested and re-invested in many different ways.

2. Private Lending Provides Increased Diversification

Let’s say you have $100,000 to invest. In theory, you could purchase a property worth $100,000 in cash. However, that would mean that all the money is tied into one investment in one location. With the right leverage, you could acquire that same property for $20,000 in cash by using private money, then diversify your portfolio or investment locations with the remaining $80,000. You could invest in 4 more properties in different locations that are valued at around $100,000 each, or you could invest in 2 larger properties that are worth $200,000 each. There are many options of how you could use the additional leverage, but that’s the point. You now have many more options. A fix-n-flipper could flip 4 or 5 properties instead of just one. An income investor can generate monthly cash flow from 5 properties at once, instead of just one. Spreading risk across multiple projects with private funding can provide a buffer against market fluctuations and project-specific challenges.

3. Talk with Your Tax Advisor About Depreciation

The impact will vary based on your specific situation, so if you haven’t already, be sure to ask your tax advisor how claiming depreciation can help you. Consider taking depreciation from 5 properties versus just taking depreciation from only 1. The tax benefits for having the additional properties could far outweigh the costs for acquiring them. Additionally, things like 1031 Exchanges can also provide tax relief, especially when faced with higher short-term capital gains taxes. Since you will likely be meeting with your tax person soon (it’s that time of year after all), now would be a good time to include depreciation in your discussions with your tax advisor.

4. Private Lending Provides Faster Returns on Your Investments

In order to scale quickly, leverage is an important part of the equation. Whether you are an income seeking investor, or a fix-n-flipper looking for short-term capital gains, the ability to multiply your return on investment can make all the difference. In our example from earlier, a fix-n-flipper with leverage could use $100,000 to acquire 5 properties at once, instead of just one property, but having a private lender means the investor could also get money for renovations as well. Even if property values for a given neighborhood don’t necessarily go up, adding things like a bedroom or bathroom (or both) to a home has proven to be a sure-fire way to increase a property’s value in a relatively short amount of time. Private lenders often provide additional leverage for renovations and upgrades, which are important for increasing a property’s market value. With that said, increasing the return is not the only consideration. Decreasing costs is also an important benefit of scaling up.

5. Leverage Enables Investors to Take Advantage of Economies of Scale

If an investor is renovating 5 properties at a time, discounts will not be far behind. Things like discounts for purchasing flooring, cabinets, or counter-tops in bulk are common. Ultimately, the more you can buy at once, the cheaper it costs per item of material. If that investor buys 5 houses at once and renovates them concurrently, they could just as well sell 5 houses at once, when the renovations are complete. This concept is not only important for speed to return on investment, but also because it enables the investor to be re-investment ready in a shorter period of time.

6. Private Lenders Enhance Scalability and Portfolio Expansion

Cash buyers often face limitations on the number of properties they can invest in simultaneously. If you ask your bank or local credit union, they will tell you that they don’t want you to own any more than 2 or 3 houses at once. That is where private lending can help. With private lending, you can own as many properties as you can afford to acquire. Private lenders evaluate each deal based on a conservative return on selling the property after renovations, or the income that the property is currently generating, or its ability to generate consistent cash flow at some future date (this could be with or without renovations). Private lenders are much more supportive when it comes to scaling up your real estate business, diversifying, and expanding your investment portfolio.

7. Private Lending Mitigates Liquidity Risk

Using your own cash can tie up valuable liquidity, limiting your ability to respond to buying opportunities quickly or to deal with unforeseen challenges appropriately. Private lending allows you to preserve your cash reserves for emergencies. In a volatile market, cash is king and having more of it available is just a better position to be in.

8. Private Lending Enables You to Move Quickly

Having an established relationship with a private money lender means you can still move quickly to take advantage of attractive investment prospects as they arise, much like you could as a cash buyer. Realtors, agents, and sellers know that a buyer using private money is just as attractive as a cash buyer because they can close quickly, and they don’t have to worry about the types of issues that buyers run into when dealing with bank loans. Earlier, we talked about an example of a fix-n-flipper doing 5 properties at a time, but the reality is, that investor may decide to wait on buying the other 4 properties right away, so they can see what opportunities develop, knowing that they are able to arbitrage at a moment’s notice.

9. Private Lenders Provide Flexibility in Deal Structuring

With private money, you can negotiate terms that align with your business strategy. Whether it's a short-term fix-and-flip project, a short-term rental scenario (like Airbnb or Vrbo), or a long-term rental property, tailoring financing arrangements to suit your needs can enhance your ability to optimize returns and navigate various market conditions. Real Estate investors appreciate features like no monthly payments, which is where the interest payments are rolled into the loan and due at maturity (instead of being due monthly). Things like no minimum DSCR requirement for DSCR loans, no pre-payment penalty, interest rate buy-downs, and advanced draws for experienced investors are all popular features that represent additional examples of how private lending can provide the flexibility you may be looking for when structuring deals.

10. Private Lenders Can Expand Your Universe of Possibilities

Engaging with private lenders can foster relationships within the investor community. This not only provides access to capital but can also open doors to valuable connections, insights, and potential partnerships. Establishing relationships and building a network of investors and private lenders can be instrumental in securing funding for larger and more ambitious projects down the line.

Conclusion

In the ever-evolving landscape of real estate investment, adapting your financing strategy is essential for sustained growth. Transitioning from using your own cash to embracing private lending can be a game-changer, offering the flexibility, scalability, and access to capital needed to take your business to the next level. By leveraging private money, cash buyers can position themselves for success in an increasingly competitive market. 

It works the same way. Institutional lenders don't have to wait to see what banks are going to do. They have their own underwriting and they have their own analysts. They make their decisions based on what is in their own best interest and they look at deals on a case-by-case basis. 

The answer is the same. It's possible, but it depends on the deal and the situation. 

Hi Orhi, you have to keep in mind that private lenders are not banks. 

A private lender does not have to wait to see what banks are doing first. They lend when they see a good business opportunity and that could come anytime, recession or not. There were plenty of private lenders who made money in 2008. 

Some investors bought distressed properties at a significant discount during that time, held them until the recession ended, then sold them for a profit a few years later. This is all without bank money, just using their own money and/or private money. 

So if you're asking is it possible, yes it is possible. That is why I said it depends on if the numbers work. If there is a legitimate profit to be made in the situation, lenders will lend, even during a recession.