First Analysis of Rental Bought with private money

4 Replies

Hi, I am working on buying my first rental. It is a foreclosure, so I am thinking it will have to be private $.

The asking is $46K. ARV is $140K. I would hold it as a rental, $1100 per month. It is a 2/1 near an air force base, in a decent school district.

My question is this: how do I run the rental property analysis, how do I account for private money? Do I just ener it as a cash purchase?

I have watched Brandon's video, but didn't get this answered.

This is my first analysis, and I have loads of newbie questions. Pardon me, but thank you in advance!

@Monica Litster Private money is just a term for someone that isn’t a bank. Could be your sister, your mother, anyone else for that matter.

The terms for it are whatever you can think of. Typically you’d use private money to buy and rehab this type of property and then refinance with a conventional bank

Thank you. How long a term should I be considering? Just long enough to get the rehab done?

I would run the numbers using the terms you negotiated with the investor and I would make sure the property cash flows using these numbers. 

Quick note: At this point I wouldn't use Brandon's percentage numbers for capEx, vacancy and repairs, otherwise the deal will scare you off.  Your objective at this point is to get the asset under your control using private funding. You can account for reserves after you financed it conventionally. I personally like to set aside money after I refi and I don't use percentage numbers to account for reserves. 

Then I would run a projection of what the numbers will look like using conventional financing.

The length of time depends on how long the investor would like to tie up his money and how much money he ultimately wants to make on this deal. If you give him an interest rate of 12% then he will be making $460 per month until you pay him back. If he doesn't need the money back right away then it would be in his best interest to keep the money tied up for as long as possible at this interest rate. On your end, it would be in your best interest to refi the property as soon as possible to maximize your profits. So ultimately, the length of time depends on what both of you feel comfortable with. 

Make sure you draft the financing contracts since you want to avoid being locked in at a rate for longer than necessary. You shouldn't be penalized for paying the loan back earlier than you originally agreed on. 

Quick question. Where are you getting the private money from? 

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