Understanding the way of lending money

Member since 2021 · 6 posts · 3 votes

I still can't wrap my head around the idea of hard money and private money when it comes to paying it back. My understanding is that I will get a loan from either source and pay the interest every month and when I refinance the home I will pay the lender back the initial investment. How does one truly do this with no money ? How would I even pay the month to month costs when i don't have enough money coming in to start off with?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

you dont.. real estate requires money from some where to transact.. its very misleading all those that talk about using none of your own money to do deals.

can it happen sure for very experienced folks it can happen.. but starting out pretty tough..

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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Private money is no different than a typical mortgage, conceptually. You get a loan when you close on a property. Presumably that property has or will have a tenant paying rent. You use that rent to make your loan payments and pay other expenses. If a rehab and no rent is coming in, that comes out of your pocket (carrying costs just like insurance, taxes, utilities and other things you’ll be paying once you own a property)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
you dont.. real estate requires money from some where to transact.. its very misleading all those that talk about using none of your own money to do deals.

can it happen sure for very experienced folks it can happen.. but starting out pretty tough..
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Jackson Rottenberg
OP
Member since 2021 · 6 posts · 3 votes
4y
Quote from @Jay Hinrichs:
you dont.. real estate requires money from some where to transact.. its very misleading all those that talk about using none of your own money to do deals.

can it happen sure for very experienced folks it can happen.. but starting out pretty tough..

lol, I agree it's very misleading. Could one leverage credit as a way to help or would that just put you in another bind of its own?
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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
Over leveraging is how many get themselves in trouble!
1 Reply
Michael Kinsella
Lender · Member since 2018 · 617 posts · 275 votes
4y
I still can't wrap my head around the idea of hard money and private money when it comes to paying it back. My understanding is that I will get a loan from either source and pay the interest every month and when I refinance the home I will pay the lender back the initial investment. How does one truly do this with no money ?

You don't, as @Jay Hinrichs said above.
Unless the property is cash-flowing (rented out), then you will be responsible for the interest payments, which means you need the liquidity to support those. If there is enough room in the loan, then sometimes an interest reserve can be built in whereby the interest payments are collected upfront.
The two primary exits from short-term loans are a sale of the property or a refinance as you mention above.
Even with loans that are "100% LTC", there is still a capital outlay for the renovation work which is floated throughout the renovation process, and there are still interest payments that need to be made.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y
@Jackson Rottenberg
If you don’t have the money from any source then you won’t get a loan.
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Ryan Deasy
Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
4y
@Jackson Rottenberg

we have a private lender that defers all interest payments until we sell or refi the property. this way, we make no payments at all. their payments and initial amount only get paid at closing.
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Mike Klarman
Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes
4y
You can get 100% financing….
If you have 30 deals last three years.
A short term loan to pick up an asset and fix it up will cost you 30k - 35k per 100k in as-is value. That’s accounting for down payment, fees, closing costs, title work, HOI, and about 5 debt payments.
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Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
4y
There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Account Closed:

There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.

we net funded most of our deals thats how it works not all but most. PS nice looking Cirrus did you buy it new ? I bought one new in 04 great experience picking it up in Duluth.
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Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
4y
Quote from @Jay Hinrichs:

Quote from @Account Closed:

There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.

we net funded most of our deals thats how it works not all but most. PS nice looking Cirrus did you buy it new ? I bought one new in 04 great experience picking it up in Duluth.

Hahaha I see you are in aviation as well! I am actually still in the process of getting my private pilots license so I have not bought the Cirrus, though when I do go to buy one it will likely be the one you see in the photo. its got A/C and a lot of cool safety features that you don't see in other planes in this class.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.

we net funded most of our deals thats how it works not all but most. PS nice looking Cirrus did you buy it new ? I bought one new in 04 great experience picking it up in Duluth.

Hahaha I see you are in aviation as well! I am actually still in the process of getting my private pilots license so I have not bought the Cirrus, though when I do go to buy one it will likely be the one you see in the photo. its got A/C and a lot of cool safety features that you don't see in other planes in this class.

mine is a 22 G2 04 serial number in the 1200s like real estate these things have about doubled when you buy them from the factory I bought mine for 430k and now they are over 800k buying
used is the way to go though at this point in my mind unless you can really use the section 179 if you can that's a monster tax deferral . friend of mine bought a new fiki that's a nice bird.. 1000 plus hours in mine. ENJOY and BE SAFE.

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JLH Capital Partners51 Review
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Account Closed
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
4y
Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.

we net funded most of our deals thats how it works not all but most. PS nice looking Cirrus did you buy it new ? I bought one new in 04 great experience picking it up in Duluth.

Hahaha I see you are in aviation as well! I am actually still in the process of getting my private pilots license so I have not bought the Cirrus, though when I do go to buy one it will likely be the one you see in the photo. its got A/C and a lot of cool safety features that you don't see in other planes in this class.

mine is a 22 G2 04 serial number in the 1200s like real estate these things have about doubled when you buy them from the factory I bought mine for 430k and now they are over 800k buying
used is the way to go though at this point in my mind unless you can really use the section 179 if you can that's a monster tax deferral . friend of mine bought a new fiki that's a nice bird.. 1000 plus hours in mine. ENJOY and BE SAFE.

Nice! here i was thinking these things deperciated. Also did not know you could use 179 for planes I thought that was just for automobiles. Thank you for the nuggets and you be safe too :)
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

There are lenders that will do this and even defer interest payments until the end if needed, but usually what ends up happening is something called "net funding" where if you get a loan for lets say 100k, the fees and first months interest will come out. let's say those fees and first months interest is 5k, then the amount that will hit your account is 95k. The lender gets their fees since you still owe that entire 100k at the end of the project. (this is not considering other fees and the other months of interest payments).
Usually, lenders will want to build a relationship with you / ensure you have a stellar track record first before doing this high of a LTC.

we net funded most of our deals thats how it works not all but most. PS nice looking Cirrus did you buy it new ? I bought one new in 04 great experience picking it up in Duluth.

Hahaha I see you are in aviation as well! I am actually still in the process of getting my private pilots license so I have not bought the Cirrus, though when I do go to buy one it will likely be the one you see in the photo. its got A/C and a lot of cool safety features that you don't see in other planes in this class.

mine is a 22 G2 04 serial number in the 1200s like real estate these things have about doubled when you buy them from the factory I bought mine for 430k and now they are over 800k buying
used is the way to go though at this point in my mind unless you can really use the section 179 if you can that's a monster tax deferral . friend of mine bought a new fiki that's a nice bird.. 1000 plus hours in mine. ENJOY and BE SAFE.

Nice! here i was thinking these things deperciated. Also did not know you could use 179 for planes I thought that was just for automobiles. Thank you for the nuggets and you be safe too :)

179 is one of hte major reason you have so many small corporate jets..
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JLH Capital Partners51 Review
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