PML money flow and documentation

[Kwok Wong]

I’m trying to better understand the flow of money and documents when working with a private money lender. Let’s say I have a PML funding part of a fix and flip. Does the money usually go straight to me, or does it always go through escrow/title? I’ve heard that funds are wired into escrow, then the promissory note and deed of trust are signed and recorded, and at the end when the property sells, escrow pays back the lender’s principal plus interest before I see any profit. Is that the correct flow, or am I missing something?

[Doug Smith]

We will usually pay out the proceeds in a series of "draws" at various stages of completion. Let's just use an example. Let's say you purchase a lot for $100,000 and you are going to build a home on that property at a cost of $300,000 with an estimated "As Completed Value" of $500,000. We could also you use same numbers for a flip...you buy the house for $100K, renovate at a cost of $300K and get an As Repaired Value (ARV) of $500K. The concept is the same. We'll count that $100K you paid for the property as down payment, so lending you the additional $300K would put you at a Loan to Cost of 75% ($100K + $300K renovation budget = $400K cost and a loan of $300K). We would close and then you would start working on the project...usually advancing your own money into the deal. Then, when you're ready, you tell us "I want to pull some of the $300K out ot cover the work I've completed." We'll make sure you've actually done the work and then wire you those funds to recoup what you have into it. Then you do more work...and we issue another draw...and so on. It's more complex than that, but that's the gist of how it works. When you get the Certificate of Occupancy (CO) and sell the property, you pay back the loan and keep whatever is left. You'll usually pay interest payments each month, though there are multiple variations on what that can look like. Some, at the end, can't sell it or want to keep the property, so it's then refinanced into a longer-term loan like a DSCR loan, etc. Did very basic explanation help you?