Down Payment using Hard/Private money

12 Replies

I would like to hear about some of your creative ways of structuring the down payment for a property using hard and/or private money for a MF property when you had little or no money. While either using the bank to fund the rest of the payment or owner is willing to do owner financing payments.

Did you pay back the lender on time? Is this possible to do, if the numbers are good enough to cover the debt to both private lender (HML or PML) & owner finance payments or bank mortgage (whichever is used). As long as you break even or still able to receive a profit.

Thanks

I believe you can only be allowed to use borrowed funds for commercial loans.  IF your looking at multi family of 4 units or less that would be a normal conventional mortgage and the lender would need to document where the money came from .  If you dont have much on hand cash then you get a private loan, the lender might require you to let it season in your account for a minimum of 60-90 days.  I dont know of any lender who would make you a loan to let the funds go into your personal account. 

You can use a hard money loan if you find a good enough deal with a lot of equity to buy with little down.  

Good luck

Thank you Jay for raising this topic as I'm in the exact same situation.

From my research to get good LTV (loan to value), like 95% or better, the property needs to be your primary residence. Many lenders have come to me with a restriction of single-family primary residence for an LTV of 95%; they all said that would be very difficult for anything larger than a duplex! I don't know if this is Georgia only or a general rule!

I would also like to explore private lenders or hard money, but don't know where to start as I have no experience of how it works or where to find.

Curt, you mentioned find a good enough deal first; the issue here is that don't we need to know our financial capabilities before searching for a deal?

Thanks.

FHA loans allows for 3.5% down which is your best option. You can get up to a 4unit property on a FHA loan. Research FHA loans and make it work for you if you can't come up with more of a down payment. Otherwise you will need to find a (equity) partner.

Kudos,

Mary

@Curt Davis   So if I come across a 10 unit property & the listing says $200k, 20% down & owner financing, & $1000 a month payment, I only can go thru the bank to get the 20% down payment ($40k)?

So 9/10 PML or HML will not lend on duplex, triplex, four-plex rentals, just banks pretty much? Just a nice wholesale type property that needs work that could be done to flip for the retail price is really what I should use PML or HML for?

@Ali O.   No problem & thanks for stopping thru & commenting on the post. I hear a lot of investors say find the deals first then worry later about the financing. Because if it's a good deal, the lender/investor will jump on it quick to make it happen to gain the profits.

@Jay Hinrichs

I am not referring to any owner finance or owner carry options.  I was strictly referring to commercial multi family.  I know a local investor who only buyer apartments in Midtown and mostly borrows the down payment from private lenders.  

@Mary B. Thanks, the actual process for these different types of loans are very strict on qualifications to even get considered. Have you dealt with FHA type loans?

@Curt Davis   Oh okay...that's exactly what I want to do. That is a very simple way to get going. 

I wonder how he structures these kinds of deals as far as terms & percentages go to both the seller & lender. I'm assuming his is pretty standard across the board with how high in percentages he is willing to go before he says "not going to work".

Originally posted by @Jay S.:

@Mary B. Thanks, the actual process for these different types of loans are very strict on qualifications to even get considered. Have you dealt with FHA type loans?

Its government funding so yes there are strict policy; yet its not impossible to get approved. Commercial lending is strict too. HML is very expensive is not for every deal because its very costly and lessens yield so you really have to truly be on point with those numbers and timeframe to repay them. FHA loans are great for a triplex or quaplex deals. I'm no longer interested in being a landlady so its not a strategy that I use. Yet the only other options would be to get a partner. There are JV HML's who will eat up a huge chunk of your yield. The deal would have to be way better than good for you to even cash out because you have to pay them back in full plus the high interest plus they get 50% of profit. That's not included rehab costs, r.e. agents / attorney fees, closing costs, insurance etc and you'll still need some 'skin in the game'.

There are even JV offers on earnest monies (they'll put up the full amount of the EMD) that I've heard of. Make sure you read the fine print on those offers. Your best option outside of FHA loan, if you don't already own a property that you can get a good HELOC is finding a equity partner.  

Kudos,

Mary

@Mary B. thanks again, I never knew about the EMD lending. I see you said your not interested in being a landlady anymore. Please fill me in on why you decided to go another route.

I like to hear different experiences so that I can keep them in mind, and/if they ever come my way I will be better prepared in the situation.

Thanks

Originally posted by @Jay S.:

@Mary B. thanks again, I never knew about the EMD lending. I see you said your not interested in being a landlady anymore. Please fill me in on why you decided to go another route.

I like to hear different experiences so that I can keep them in mind, and/if they ever come my way I will be better prepared in the situation.

Thanks

I've been there done that and although it was a great learning experience indeed, its not for me. I loathed every minute of it. That's not to state you will too. You may love it to pieces and I wish you all the best if that's the avenue you choose. 

The EMD lending is something sort of new that I've seen a few investors offering but as always you have to watch those numbers. If they are putting up $5,000 EMD does that warrant them getting $25,000 within 4 to 6 months? I'd say hello no off the back but to each his/her own. Maybe the yield is large enough to sacrifice that $25K and still be able to walk away like a cheshire cat. It really depends on a lot.

Kudos,

Mary

@Mary B.   Thank you for the wish & information posted. Lol...I would say the same!

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