Lending Gap Funds with 2nd TD and Shared Appreciation Mortgage
Hello Everyone,
This question is directed to Private Money Lenders...
How many of you lend gap funds to other Investors ?
Scenario:
A Borrower has a hard money loan for 80% Purchase + 100% Rehab...
and looking for us to fund the remaining 20% Purchase Down Payment.
Purchase: $1m
Rehab Costs $200k
ARV $1.8m
How do you structure your subordinate debt on fix and flips ?
What interest rate or equity-share % would you propose to Borrower:
- Straight Debt for 20% Gap
at 15% interest and 2pt subordination (2pts on 1st TD and 2pts on my 2nd TD)
or - 50% Shared Appreciation Mortgage...
50-50 net profit splits once project is completed
Borrower gets reimbursed all capital for debt service, then net profit is split 50-50
or - Both 15% and 50-50 SAM...
Borrower pays 15% interest and 2pts subordination during course of the project...
once project is completed, share 50-50 net profit with Borrower.