Private Money Lending Structure?

3 Replies

I am a new real estate investor. I've been emailing with someone claiming to be a local private money lender In my area. When I inquired about their process for funding a deal, he responded with the following, "I would need to be the buyer, then sell house to you on REC with at least 10k down @7% interest. I would also add some amount 5k-15k to REC as "back end" profit when it sells. I would need a remodel plan with only your funds used to update." Numbers aside, is this a common structure or practice when it comes to private lending, for the lender to actually make the purchase?

Hi @Patrick Torres !  I've never heard of this kind of structure.  I'm certainly not an expert here, but I can't see any value to the financier in this unless they are purchasing it, owning it WHILE you do the renovations with your own money, and then "selling it to you" on the backend once you've found a buyer (a double-close).  That would put the financier making $10k on the frontend, owning your updates if you disappear, making 7% throughout the project, and then making $5k-15k on the backend, all with relatively modest risk. Now THAT I understand, but that would be a RIP for you!

However, if they are offering to purchase the home and double-close on the sale to you . . . I don't understand the advantage to them and it certainly isn't a simply setup.

In the end . . . money is not scarce is Occam's Razor is not wrong.