Private Lending Question

[Steven Horvath]

I am very new to everything, especially how loans work, and need a little clarification. Lets say i have a rich family member that would loan me the full cost to buy and rehab a house at around 8-12% interest with deferred payments until i got a tenant. And my goal is to rehab the house and then rent it out for long-term cash flow. lets say 1 year after the purchase i am able to get a bank to refiance my loan and i could pay my family member back all their money and have a rental property with a morgatge at a bank with a conventional 30 yr at like 5-6 % interest. (I am not sure that is how it all works) but my question is how much/were does my private money lender make money if they loan me the money for 1 yr and then i am able to get a bank to refiance for me. do they just get the 8-12 % interest on x amount that was borrowed for the 1 yr-until i get a bank to refiance me? Sry if i am vague i am very new to the process, and want to understand private lending. I have a rental but never using someone elses money, i used all my own and never want to do that again. Any advice would help a lot!
Steven

[Bill Gulley]

Hi, how much do they make? Well, $50,000.00 (loan amount) times 10% (the interest rate) is $5,000.00. You might ask your "family member" what they are getting on their money and offer 2% over that rate! I bet it's alot less than 10%!

You should really set up your loan a little longer than 12 months. After 12 months you will be considered a refinance which will be based on the appraised value. If you make your loan application before that 12 month period, the lender will look at the sale price and the appraised value, which ever is less to base the loan on. That means that if the sale price is less than it is appraised at, the ratio of the loan amount applied for will be in relation to the sale price and might not be enough to payoff your loan. Especially, if your first loan includes amounts for improvements. Bill