Is a PL right for me?

Question

I don not plan on trying to get any money right now as I'm still learning more about rehabbing, however I'm planning on how I will finance my first rehab. Currently I have $20,000 to put down. My question now is will I be able to get a loan from a private lender? I'm 23 years of age and have very good credit. What else should I expect to show them and what do they expect from me?

Thank You very much

Nathan Emmert · Answer

Private money is a great way to flip if you can find it (i.e. a rich family member or other acquaintances).  Generally you'll pay lower interest, fewer points, and get longer terms on private money.  If it's your first flip and you're doing work yourself those could all be big as it will always take longer then you plan.  If you plan to refinance and hold the properties as rentals, this strategy allows you to season the property long enough before the refi without huge penalties.

That said, you're generally risking a personal relationship.  Hard money is leant based on the opportunity, private money is based on the relationship.  Given it's your first, are you comfortable risking that relationship?  What happens if the feces hits the oscillating propeller?  I would advise using lots of your own money to reduce that risk at least on your first few until your confidence goes up...

Ankit Duggal · Answer

Shane first of all great job at socking away $20k+ at the age of 23 as that is a tough feat to accomplish at a young age. Private lenders care more about the deal than your income profile. So if you can get a deal whereby your all in equity needed is no more than $20k and the lender exposure is not more than 65% of After Repaired Value (ARV); you can get a private lender interested in giving you capital.

I would recommend that you prepare a funding package which is what i typically do when I go looking for private lenders. The funding package should include a executive summary outlining what, how much capital, and how will pay back the loan, copy of the signed contract, a copy of your tri-merge credit profile (they will pull one from their credit vendor regardless), a personal financial statement (may not ask but helps to have it), and bank statement showing the necessary equity liquidity.

Happy Investing

Ankit