BiggerPockets

First, it seems that you are confused about terms. By that I mean that you do not offer the lender any terms, such as interest percent, rate, principle vs interest, ect. It is the lender that dictates these terms and you that accepts or turns down his/her terms of repayment in exchange for the monies that you recieve.

This is true wheather or not it is private money, hard money, or conventional money.

I think what you are really looking for is a PARTNER for your venture, but what is common for that is they take 50% of profits.

First, the mechanics. Setting up a loan secured by real estate is easy. Title companies do it dozens or hundreds of times a day, since most real estate transactions involve a loan. The details vary from state to state. Typically there are two documents. A deed of trust or mortgage and a promissory note. The DOT or Mortgage gives a security interest in the property to the lender. As the borrower, you grant the lender this interest with the DOT or Mortgage. This document is recorded. The promissory note details the interest, payments, etc. Its between the borrower and the lender.

You say you want the payments to be 50/50 interest and principle. But you also say you want the loan repaid over 30 years with a 7 year balloon. Sorry, the math doesn't work like this. When you say "repaid over 30 years", you mean you want a 30 year amortization schedule. Doing that with a seven year balloon is fine. Payment on a $100K loan at 6% with 30 year amortization is $599.55. After seven years, the balance on this loan is $89,839.39. You can do these calculations using Excel or a financial calculator.

But, on the first payment $500 is interest and $99.55 is principle. The interest due is fixed by the balance and the rate. So, if you want 50/50 payments, your payment would need to be $1000. That's the same as saying the amortization period is 139 months, about 11.5 years. That gives you a 50/50 payment the first month, but in future months the payments are more princple than interest because the payment is fixed while the balance and corresponding interest payment are falling. Certainly you could set up a schedule where the payment is exactly twice the interest due, but that would be a pain.

Finding people who have money and will lend it to you is straightforward, but hard. You're just going to have to meet and talk to a lot of people. Tell everyone you meet about what you want to do. Some won't care at all. Some will listen polietly and then forget about you. What you're looking for is that one person who says "that's something I'd be interested in, tell me more". Now you have the opportunity to talk a bit more and eventually get around to asking for a loan. Talk to enough people about this and you WILL find some people who both are interested and have money.

Trouble is when you propose 6% as the interest rate most of them will laugh. Most, certainly not all, but most people who've managed to accumulate enough cash to fund buying a house know a bit about loans and investments. They will know 6% is bank rate financing. They will know you could get this at a bank if you have good credit, a down payment and a house in good condition. You'll say, but this is a junker house and I want to borrow the purchase price plus money to rehab the place and carry the property while I'm doing it. If you're unfortunate enough to run into someone like me, I say OK, fill out this 1003, show me your bank statements and pay stubs, give me an authorization to run your credit, give me the info on the property and a check for the appraisal. If all that works out, I'll fund you deal for four points and 15% or something equally outrageous.

So, you're hoping to find someone who has the money and is willing to lend it, but doesn't really know what they could be making on real estate. I'm sure those people are out there. I do think most of them know enough that they know 6% is a crummy deal. If you could get this for 9-10%, I truly think you'd be doing good.

Jim's suggestion is good. Find a money partner. But I'll warn you to do the math. Giving up 50% of a deal to a money partner is almost always more expensive than hard money.

The bottom line is you're wanting bank terms from a much more flexible lender. Someone like that might exist and you might find them. Much more likely, though, that the person you approach will be more knowledgeable than that and will demand much better terms than a bank.

Brian, it sounds like you're syndicating. :)

BTW, has anyone recently (ie within the past 3-6 months) found any equity partners willing to do a 50/50 split on deals?

Since I read in othe threads that doing owner's financing can get no interest under certain terms, it seems that owner financing is cheaper that finding Private Money?
By the way it also seems that Second to that would be conventional financing is the second cheapest ?
Is there an order of things where for instance: Owner's financing is the best, conventional second best, Private money 3re, and hard money last.
what is the best and cheapest financing ?
Last are there credit cards that have below 10%interest for 25k rehab deals ?

Ok, let me ask a more specific question on owner's financing. I am curious as you how you would or others approach it.
Let's say I told you I had a property in Indiana that I want to sell for $40,000. And the rent is $700/month. Not quite the 2% rule ratio but close. Let's say you were interested right now in buying it not for a flip but for long term rental. How would you approach me and what terms would you offer me including interest rate, down payment etc..
I am real curious as to the specifics of each of your answers

In a way, the interest rate that I'll request won't matter, because most sellers will focus upon the amount of the payment.

Here's how I'd analyze the deal (using the 50% rule and $100/door):
monthly payment (M) = (700*.5-100) = $250
M*(12/.06)*(1-pow(1+.06/12, -12*30)) = 41697.90
M*(12/.07)*(1-pow(1+.07/12, -12*30)) = 37576.90
M*(12/.08)*(1-pow(1+.08/12, -12*30)) = 34070.87

Depending upon our negotiations, I might present my initial offer to you several different ways:
offer price = $34K
down payment = $3.4K
monthly payment = $250 (the interest rate could be anything <= 8% APR [including 0%])

offer price = $34K
down payment = $3.4K
interest rate = 6% APR (expecting you to counter; intending to pay no more than 8%), 30-year fixed, with 5-year balloon.

offer price = $34K
monthly payment = $250
100% seller carry back (most sophisticated investors won't go for this)

. . .

The point is there's no one right way to do these kinds of deals. Don't over-think this. Run the numbers considering your best and worst case scenarios, and present your offer with the terms that work best for you. The seller will counter if s/he is interested, but wants different terms.

Additionally, keep in mind that what I'll offer and what I'll pay could be 2 completely different sets of price/terms. Yet, I'll always begin the negotiations presenting the offer that makes the most sense--and that saves the most cents.

By the way, I agree 100% with Jon.

Its a "present value" calculation. Rent is $700 a month. Less 50% for the 50% rule and you have NOI of $350. Subtract off $100 for the desired cash flow and you're left with $250 as the max payment. Apply a present value calculation (I'd do it with Excel) with a 30 year term and 6%, 7%, and 8% interest rate and you get those three values.