How to use private money and structure the deal.

4 Replies

Hey guys, 

I am just starting out buying real estate. I have two buy and holds under my belt and a neighbor of one of the properties came over and said he wanted to sell his house fast. I dont know the price yet, but I want to get private money set up before then. I have a lender who is new to the game of lending. He has a good basic and working knowledge of real estate. I want to come to him with the deal all put together. My question is, how are the loans structured? I am in Washington and will need the loan to be over a year long. I am willing to do 12% and am thinking I will need 100 grand from him. Can you break down the deal and how you would structure it? Thank you for your help.

Originally posted by @Derek Dodd :

Hey guys, 

I am just starting out buying real estate. I have two buy and holds under my belt and a neighbor of one of the properties came over and said he wanted to sell his house fast. I dont know the price yet, but I want to get private money set up before then. I have a lender who is new to the game of lending. He has a good basic and working knowledge of real estate. I want to come to him with the deal all put together. My question is, how are the loans structured? I am in Washington and will need the loan to be over a year long. I am willing to do 12% and am thinking I will need 100 grand from him. Can you break down the deal and how you would structure it? Thank you for your help.

 That's a pretty sweet deal if you can get a house in Kingston for $100k. You need to do a Purchase & Sale Agreement and whatever form replaced Form 17. (I forget the name. ) Anyway, you then set up title and escrow. Usually the lender will present his rate & term but you can suggest 12% for $100k on a 30 year amortization with a 5 year balloon, with no prepayment. That would be a payment of about $1,029 a month. Your balloon after 5 years of payment would be about $97,663.

If I were your private lender, I would need a promissory note and a Deed of Trust recorded with the county assessor.  I would take 12% all day if I knew the deal was a slam dunk.  That is approaching hard money rates.  For example, I just refinanced out of a hard money loan at 14% with 3 points.

Thanks for the reply. Very helpful. I talked to my investor today and I am putting together a proposal. I'll let you guys know how it goes.