#AskBP - Private lenders for Buy and Hold investments

21 Replies

Most private lending seems to be for flipping properties.  Are there investors out there that use private lending for long term buy and hold properties. And if so, what are the typical terms of the loans.      Thanks,

Allison

This is a great question.  I've posed the same question in the past and what I have gotten is that if you're getting a larger deal, then it's easier to secure buy and hold financing.  You can syndicate, or attract investors who have larger amounts of money to invest.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Originally posted by @Allison Karrels :

Most private lending seems to be for flipping properties.  Are there investors out there that use private lending for long term buy and hold properties. And if so, what are the typical terms of the loans.      Thanks,

Allison

 So - what is "buy and hold", Allison? If I put money in, I do want it out at some point. Perhaps not in 6 months, or 12. But, what is "long term buy and hold" to you, and how will you accommodate money out...?

Thank you Dawn and Ben for your comments.   "Buy and Hold" for me is owning rental properties for 20+ years.  Honestly I have no exit strategy at this point. I have been slowly adding single family homes to my portfolio and I am now about to close on #4.  I plan to move into multi-family (2-3 unit homes) next.  My goal by 2025 is to have 20 units cash flowing $200 each, but I know soon it is going to be hard to keep getting traditional financing.  If all private lending is short term (< 1 year) then I doubt it will work for me - I would need to continue to learn more about the options out there (looks like Ben's website will be stop #1 for creative financing education).    Perhaps private money for the long term cash flow investor is mostly seller financing and not an independent 3rd party investor - because to make it work I would need 15-20 year terms on most home purchases.  If the private lender portion was just for the 20-25% down payment payback could be 2-3 years of monthly payments.

@Allison Karrels  look into portfolio lenders.  These are typically smaller banks that make loans and then hold those loans in their own portfolio rather than selling them to Fannie & Freddie.  They won't give you 30 year fixed rate loans, but 15 year fixed is possible.  Rates will be only slightly higher than conventional.  They also don't usually have the limits on the numbers of properties.  They will still want 20-25% down payments, though.

Many lender will not allow you to borrow money for the down payment.  That makes it too easy for you to just walk away.  

Its not impossible that you could find a lender who does want to be in for the long term.  Private lenders are people you know personally who are willing to invest in you.  So talk to everyone you know and everyone you meet about what you're doing.  Eventually you'll find some private lenders.

Rentals are really a cash on cash game, though. Your goal translates to $48K a year in cash flow. Earning 10% cash on cash returns for rentals in pretty good. So that implies you're going to have to invest $480K of your money to get there. Not borrowed, but your actual money. Once you start acquiring good rentals (i.e., ones that are a lot better than "rent-PITI" for cash flow), then you can snowball the income from the rentals into future acquisitions.

Jon Holdman, Flying Phoenix LLC

This post has been removed.

I have a couple loans from my parents for buy and hold properties.  They are not long term like bank loans, but they work well.  I have one at 5% and one at 6% both are 5 year notes secured by the assets.  It is better than a CD but not as volatile as the stock market.  They could make more buying properties themselves, but then they have the headaches of managing them.  Oh I also have to "pay" occasional extra interest in the form of fixing sinks and stuff in one of their properties.

Originally posted by @Allison Karrels :

Thank you Dawn and Ben for your comments.   "Buy and Hold" for me is owning rental properties for 20+ years.  Honestly I have no exit strategy at this point. I have been slowly adding single family homes to my portfolio and I am now about to close on #4.  I plan to move into multi-family (2-3 unit homes) next.  My goal by 2025 is to have 20 units cash flowing $200 each, but I know soon it is going to be hard to keep getting traditional financing.  If all private lending is short term (< 1 year) then I doubt it will work for me - I would need to continue to learn more about the options out there (looks like Ben's website will be stop #1 for creative financing education).    Perhaps private money for the long term cash flow investor is mostly seller financing and not an independent 3rd party investor - because to make it work I would need 15-20 year terms on most home purchases.  If the private lender portion was just for the 20-25% down payment payback could be 2-3 years of monthly payments.

 Allisson - all private lending is definitely NOT short term. All hard money is short term, but there is a world of difference between private and hard money.

However, I think it's unreasonable of you to assume that any private lender will want to tie up cash with you for 20 years, or anything even remotely close to that. Therefore, while your strategy may very well be to hold for 20+ years, you model needs to accommodate private money coming out of the deal much sooner than that...

Understand - there are 3 questions a lender - any lender, will ask:

1. How much will you make me?

2. How quickly can I have the money back?

3. Are you someone who can be trusted to do as you say?

Perhaps, question #3 should come in first place. but, this is it...

Personally, I've never been able to achieve longer Note length than 7 years. And I've never held a note in place for any longer than 4 years - always cash people out earlier than contractually obligatory... What enables me to do this is that I have a business plan on the way in which accommodates least 2 ways of getting money out!!!

You have to think this through :)

Hope this helps.

Allison, yes, long-term buy/hold is available from several lenders.  Options are a "blanket" loan on several rental properties to individual long-term loans.....meaning, 30 year term, 30 year AM schedule and rates starting at 6.45%.

There are lenders who will fund the purchase of an investment property, the rehab, and then automatically roll the loan into a 30-year mortgage automatically.

Hope this helps:)

I currently have a great "buy and hold" private loan without credit, income or appraisal requirements that lasts for three years.  I'm also working on a 30 year term loan that may be available with the same terms in the next two months.  Let's connect through BP.

Medium spf jpegDarren Eady, Secure Private Funding | [email protected] | http://www.secureprivatefunding.com

Most private money is short term, but there are a few that are long term.  You will have to look around and ask everyone since they are a needle in a haystack to find.

do you have any referrals in the Pennsylvania Marketplace

@Dawn Anastasi

 What do those deals look like? You bring in outside investors and you give them part of the equity or something?

If a private lender will lend for a term of 2-3 years on a buy-hold then you can typically cash out refinance at a bank.  Banks want to lend on performing assets.  2 years is a magical number for most.  2-3 is longer that most hard money but it does give a private lender a cycle to their money that is more desirable than the long stretch.  

PL typically don't want  to be locked in for a long term because they make money on points and/or they may want to be able to react to market shifts/cycles. 

Some may prefer the long stretch though.  Especially if they can use leverage.  You can be active, and they can be passive.  All with real estate as the collateral.  

If you find 10 private lenders, you will find 10 sets of goals, criteria, and personalities.  Mesh your goals... with theirs.  

This post has been removed.

Thank you to everyone for their suggestions.  I am currently only looking for $20-$30k to fund the downpayment for a traditional mortgage.  Since it is small I followed the suggestion from  @Paul Ewing 

I wrote up a business plan with what I have done so far (4 SFH) and my plan to purchase another property this year. I then gave it to my father to see if he had any cash or bond funds that were not great performers and offered to pay him 5% over 4 years for a $20k loan. That amount and terms will allow me to get another property (a duplex) and still cash flow a small amount.

As I continue to grow and learn I will try seeking out more options but for my first private money loan I think a small amount from family will be a good experience.

@Darren Eady .  I would love to know more about the great buy and hold Private Money lender you work with.  Could you share some information?

@Clifton Kaderli

Do you think the 2-3 year term for refinancing would work on turn key type properties? I want to use private lending to acquire them giving the lender a nice percentage back each month/annually and hopefully use that money to keep purchasing new turn keys. I just need an out to either repay them the money back if they require at end of term or hopefully keep reusing it to acquire new properties. I know the answer is somewhat market driven in those areas. I'm a newbie so forgive my ignorance.

Hi, I am researching buy and hold loans and I was wondering if it is possible to use for a new investor like my self. My siblings and I inherited a 3/2 SFH free and clear. My siblings want to sell and I would like to buy it with creative financing. I want to use it for student housing. I need advice where to start. Any will help. Thank you in advance.

@Darren Eady Hi Darren, do you lend in Colorado or stick to your local market? Curious as to what your lending parameters are if you do lend in Colorado. Can you shoot me a PM? I'm looking for long- and short-term investments, fix/flips, primarily. There's a somewhat high price to ARV out here, but in terms of absolute numbers, they still look good.