Structuring Private Money Loans

3 Replies

New to the Real Estate/Investing world; bought a rental about 15 months ago and looking forward. I am an architect and naturally want to explore new construction/development.

I own a vacant lot, and have a home designed and appraised. Potential tenants are showing interest. The problem: I am missing out on committed tenants and other opportunities while I try to save enough cash for this investment property.

I am looking for helpful resources on how to structure loans from private money. When does the term begin (when loan is approved or when tenants start paying rent)? When do investors see the return and I hold the property on my own? An example of the cash flow in this scenario would be very helpful.

We always secure it with a trust deed and a personal guarantee. Typically we start paying interest up front, on a construction project, you could maybe do something where they accrue interest for a certain amount of time and then you pay them that lump sump and start making regular payments until you can refinance with a bank. That would make potential lenders nervous, but they will be much more nervous if their payments are contigent on a tenant or something else that isn't concrete.

I am using a private lender. They are providing me with 100% of the cost to purchase and rehab the property for 15% simple interest over a period of six months. So $15K per $100K invested. Their investment is secured by a note and lien on the property. There is also a personal guarantee.

The agreement is structured so that after a period of six months I have to make a "good effort" at either selling the property (and repaying them) or renting the unit and getting a cash-out refi (and repaying them).

Yikes, 30% APR is worse than blood money from a loan shark.

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