Would Private or Hard Money Lenders Lend on a Rental?

[Melissa Harris]

I may have a great off market deal with a 10 plex here in Colorado that the owner is looking to sell. He is asking $815,000 for it and by running the numbers, they look really good at a price at $652,000! The cash flow after all expenses (5% Vacancy, 5% CapEx, 5% Repairs, 10% Property Management, $400 water/sewer, $500 insurance) which will put the cash flow at $4,200 and ROI would be 7.69%, But I do not have the money to fund this deal OR get a mortgage for this deal as I do not have the 25% down. So my question is what type of other financing can I use? Would a private or hard money lender lend money on a rental if the cash on cash ROI and monthly cash flow were good but didn't need repairs? What type of numbers do they look for? Or do you think that a private money lender would lend me the 25% down payment for a portfolio loan?

Any suggestions would be greatly appreciated! 

[Andrew Johnson]

@Melissa Harris Actual lenders will be able to give you some better insight but if you did get a hard money loan for 75% of $650K that would leave a mortgage balance of $487,500 which at 5% and a 25 year amortization period would be $2,850 per month.  That leaves you free cash of $1,350 per month.  HMLs don't usually have super duper long time periods so let's say you have between 1-4 years to pay back the 25% down payment, which is $162,500 + points + fees + interest.  Even at the more "optimistic" 4 year scenario your free cash-flow isn't even going hit $65,000.  So that means you have to come up with another $100K the accumulated interest, points, fees, etc. over the next 4 years.

This is just simple math but it leads to the obvious question of...can you do that?

If not, you're probably looking for a partner rather than a lender.