Using Private Money or JV for downpayment on HML advice

8 Replies

I spoke with some HML about using funds from another private lender (or partner) to serve as the downpayment on the loan. Some places offer 100% loan to cost, others require 10-15%. They suggested I could use a back room deal with another private investor for this purpose, or put them on the llc and it would work, so it seems possible. This is good, because it's my only way to proceed forward at this point. I don't have any funds at all!

Assuming this is possible, how would I structure the agreement with the private investor who will cover the downpayment on the HML? Do they get a second lien position, assuming the HML allows this? Or is the deal structured in some other way?

What percentage return should I offer them, or flat return, assuming I need 15K in capital?

Since I have no funds for the downpayment, I also have no funds if they structure the renovation drafts to reimbursable and they don't upfront the drafts, so potentially, there are two sources of financing I need to consider - downpayment on the loan itself and any upfront renovation drafts (reimbursed each time)

I realize I'm totally scrapping the bottom of the barrell with precious little as a starting point, but I'm sure others have made it in the past before and I'm hoping I can do the same following the wisdom of other investors every step of the process.

I'm also considering a rehab only loan, if the sellers would allow this and split the profit with him, thus negating a sizable downpayment on loan (if any) and I'm only need to contend myself with the much lower rennovation loan costs, to which HML or private investors would be an option.

Thanks for your reply.

Please clarify, if I want any money from any private investor, I must give them a lien on the property. Is this correct?

So, trying to get a HML and one from a private investor, I'm essentially creating two liens to do the deal.

Some HML, do allow second liens.

I realize this is a pretty convoluted way to go about doing things, but I only need to do it once or twice, and if I do it correctly, I'll have enough capital to not require PI.

@Tim Ivory

Why not skip the HML all together and use a private lender for the investment. You'll need to refinance out of the private lender or they can be a partner. Not sure what type of investment this is, but there are numerous ways to structure deals like this.

@Kenneth Garrett this is the clean option and the better option for PL and the investor. What experience or relationship do you bring to the table that would make a PL feel comfortable with lending you 100%.

@John Powell

It definitely takes building a relationship that includes a great amount of trust. I have met many private lenders at local REIA meetings. Over time building the relationship earns you trust. Your experience whether it be as an investor, contractor or other related venture adds to your credentials.

@Tim Ivory ok my good man. Since I'm a Tennessee based HML, private lender, and rehabber, and also borrow HML and private money on my own projects, and do a lot of JVs, I believe I am well poised to answer this one.

1. You will not be able to qualify for a hml without cash reserves. So your partner would have to be the loan guarantor.

2. If you have the deal and they are getting the loan and providing funds, they are taking all of the risk. For that, a fair split would be giving them 65% of the equity.

3. Create a new LLC for this deal only with you and the partner as members. Outline the terms of the equity split on your operating agreement.

4. LLC name should be the buyer name on the contract. Now your partner applies for the hml, and closes the deal.

5. You do the work, sell the property, wire proceeds at closing, and dissolve the LLC.

That's it. It's really not too complicated. This is the right way to do it if you can't qualify for a hard money loan, and don't have a PL that will

Lend you 100%. Hard money lenders won't allow second mortgages, so debt partnerships are out. But if you did have a PL that would lend you 100%, just do a promissory note for 12-15% interest only for 1 year, so that they have the security of a first position lien.

I hope this is helpful! Feel free to PM me if you have any other questions.