I understand how private money can work for Fix and Flip and also for a Buy and Hold partnership.
Is there a way to use private money for Buy and Hold where you can pay back the private money (with interest) and own the property just yourself?
Would love some feedback on this cause I have been trying to figure out how this could be done, and maybe it can't.
Sure. Private money can just be a lender. Private money implies it is someone you know. My b&h private lender likes 70% LTV or less, fixed at 6%. He has no interest in being an equity partner. I've used him most on seller financed deals which he sold me and a refi out of a commercial loan.
There is a lot of money out there earning squat in a bank. Go find a private lender that has no interest in equity participation, Philip!
Thanks for your reponse. Not sure I understand, if it is a seller financed deal why not work with the seller to structure a loan, why would you need Private money? How long do you wait before refi with a commercial loan.
@Philip Madison your question was if you could pay off a private money lender and own the property yourself. What @Steve Vaughan is saying I believe is that, yes you can pay off a private money lender because they are just a lender and when you pay them back with the interest promised then they are paid off and you own the property (except for the underlying mortgage of course).
Here is an example. Let's say I find a good deal on a house. It's was all fixed up a few years ago by an investor who now wants to sell. Their renter who lived in it didn't take as good of care of it so it might need about 5k to get a few things fixed and to give it a good cleaning. Let's say you can buy it for 90k (including closing costs) and a conservative ARV is 125k. A lot of your capital is tied up in other projects but you can get a hard money loan on it for 85k. You need another 10k for the purchase plus rehab. So you find a private money lender who lends you 10k on the property. You close it with the hard money lender and private money lender's money. You then use the other 5k to do the fixes.
After it is fixed up you have a tenant that moves in who pays $1000 a month in rent. The property then appraises at 125k and you have a bank that works well with investors who will do a refinance a tenant $93,750 (75% of the ARV). You were able to do everything quickly so your carrying costs were only about 2k. So at the close you come to the table with $1,250 plus some extra for interest to pay off the private money lender and the bank pays off the hard money lender. So for about 4K you were able to acquire this property that is valued at 125k and you now have a mortgage for around 95k (including closing costs) and you were able to pay off the private money lender.
Thank you Shiloh for your detailed explanation. This made it very easy to understand.