High % private money worth it for a few years, if I can come no money out of pocket?

[Luke Tetreault]

I have an apartment building I am currently structuring financing on, I am going back and forth on my options. I have a private lender who is willing to lend the purchase, closings and renovations. I come out of pocket zero. Now to make the loan he has to move a few things around, so to make it worth him doing that he would like to guarantee 5 years of %. After 5 years I could cash him out and refi with a local credit union at a much better rate. It would still cash flow in the mean time, and on the cash out refi I would be able to get out all of his investment due to this being a great deal. Now my question is, would it be worth the 5 years of high interest to be able to acquire it with zero down? Or would you start actively trying to either find new private lenders, talk to different banks, etc... where maybe I have to put some money down, fund the rennovations but I could cash out as soon as I'm done and could immediately get better cash flow with a lower rate. Obviously some pros and cons here, curious what types of opinions you guys have!

[Payton Haight]

Hi Luke, it sounds like you have some good options to choose from. What kind of cash flow are you expecting to get with the 'zero out of pocket' option? Is it enough cash flow to make it worth your time for 5 years? 5 years is a long commitment if you are expecting to put a lot of time in to the property and not generate much of a return, however if you can get enough money on the cash out refi on the back end maybe it still makes sense for you.

Assuming you are financially in the position for the putting money down option, I would compare the 5 year income projections, including projected appreciation/equity for both options. The answer for this one is going to be dependent on your personal situation, but make sure to consider your time and the time value of money when comparing these options.