My wife and I are looking for our 3rd deal and are having a lending discussion. Our past two deals have been through conventional lending and are now looking at other options as we are wanting to increase our purchase price. Our issue is the down payment, as we have enough to stay in the range that we have been investing in ($50k - $80k) but, there is very little in that range right now where we live that turns a decent profit. Is hard money lending or teaming up with a partner to help with the financing a good route for us to pursue? I feel it is, but my wife is skeptical/concerned about borrowing from a hard money lender or someone we don't know in order to make a deal happen.
Any suggestions or help would be great as there are some good looking opportunities here in town that are currently just out of our price range.
Most hard money lenders are algorithmic. Just make sure they disclose all fees when they give you a quote. Use referrals or ask for references to vet your lender. Teaming up with a partner may be a viable strategy as well, but I suggest getting your deal analyzed by a HML to see where you would make more money.
Consider the following example: You go 50k in and your JV partner puts 50k in and your profit sharing is 50%.
You go 15k in and your HML goes 85k in; You paid 12% on 85k for 6 months and 3 points on 85k due at closing. So you actually went in 17.5k and paid about 5k in interest (assuming 6 month exit).
Which scenario generates more profit for you? Which scenario maximizes your leverage?
JV deals do have their place, but this example illustrates better leverage and profit with a HML.
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