How are some ways I can pay back a private lender?

Question

Hello BP,

I am sitting on some capital and am currently looking to buy my first multifamily. Depending on the price of the property I come across and deal it turns out to be (using the BP calculator) will determine if I ; A) FHA the property or B) use my capital for costs. Now if I go with B is some cases I am going to need a private lender who I have a lot of friends that trust me and know that I am trustworthy and receiving money is something I am confident I can get if needed to help me close a deal.

So my question is what are some ways I can pay back my lender? This is what is in my head and correct me if I am wrong, but I was thinking if I receive the property then give it about 2-3 years refinance the house and pull out equity (obviously by using the calculator that the equity amount will be enough on year 3) and use that to pay back the money that was lent to me.

Is that a smart option to present to my private lender? and if there are any other ways I am willing to listen.

Thankyou.

Kevin Manafi · Answer

@Paul Deliso Finding a multi-fam or any property for that matter that is value-add and needs some TLC would be your "easiest" way of adding equity and forced appreciation upfront which would then allow you to pull more cash back out to pay back your lender, assuming the comps and market support the ARV.

Kevin Manafi · Answer

Hi @Paul Deliso, congratulations on taking the first steps towards getting your first multifamily under your belt! The fact that you have private capital available and ready to go is very helpful and will go a long way in getting your first deal started.

There are several ways you could pay back your investors/lenders, most commonly with some sort of refinance. Different lenders/banks have different seasoning periods--i.e. the amount of time you must wait from the original purchase in order to refi--but it more than likely will not have to be 2-3 years if you have the equity available sooner.

A simplified example with easy numbers: You borrow $90k in private money to buy a $100k house and spend $30k in renovations. In all, you are into the property for ~ $120k for simplicity's sake. The ARV of the property is now $160k. After 6 months, you find a lender that will give you a cash-out refi @ 70% of ARV, which would equal $112k. You can then return the $90k to your private money lender, get your $10k down payment back, and only leave about $8k in the deal assuming you funded the rehab out of pocket.

Paul Deliso · Answer

@Kevin Manafi this is a great response and it is an answer that I didn't think of before with the ARV which is a great thing to add to my future plans. But what if I don't have an ARV it is just a regular Muti-fam that is pretty much ready to go that I get into and start cash flowing from the start. Or is finding a multi fam that needs some TLC and calculate my ARV the best way to go....