Private Money or Traditional Lender?

[Connor Loyd]

A business partner and i have been eyeing getting started in real estate investing for at-least the last year. We finally started our LLC and nailed down a plan. We are looking to buy, lightly update cosmetic items and rent the houses out. The area of St Petersburg has had rapid rent growth and homes near the urban core rent very quickly.

We are now talking to private money lenders and traditional lenders. We were little surprised when the first hard money lender said we would still need to bring somewhere around 25% to the table, they would be willing to pay for the renovation but would also be charging a 1% a month interest rate until we refinanced. With having to bring such a large amount to the table it almost seems the traditional lender is a better avenue, especially if we would be bringing the same amount down and could avoid the high interest rate/refinance costs. We have the capital to do this but it would dramatically lower the amount of homes we were thinking we could buy in our first year. 

So my question is, is it normal for private lenders to require you to bring this much to closing? We also looked into interest only loans, which would allow us to cash flow very easily. Are there any company out there that offers interest only loans and doesn't require  20%+ down? Or what other ways are there to purchase rental properties that we are missing? 

Anything helps, thanks! 

[Didier Bizimungu]

Hi Connor, 

I'm not sure about your other questions -- but yes it is typical for hard money lenders to require 25% down followed by interest only payments with the interest in the 7% to 10% range unless you have previous flipping experience (usually 3+ homes in the past 2 years before you get any advantages). 

If you're only looking for homes that need light cosmetic updates I would highly recommend you go with traditional lenders. Hard money lenders are usually reserved for homes that won't pass inspection. 

And just a heads up private lenders are different than hard money lenders. Private usually implies a specific individual vs. an established flip lending company like a hard money lender.

I hope that's helpful. I'm in St. Pete too by the way, love investing here!

Thanks, 

Didier