Super excited to start my journey in real estate investing. Been hesitant for many reason but recently decided to take a leap of faith and invested in my first single family rental property. Now that I have this under my belt, I am still confused on the private money / hard money concept. Luckily we were in a good financial situation and worked with a great lender to get a 3.5% with 25% down for this property. As I start looking to build out my portfolio, I can’t afford to put down 20-25% all the time. Many have advised to go to private money lenders or hard money lenders but I don’t get that concept. What are ways to invest with lower % down or even 0% down? Pros and cons on private lending or hard money lending?
Would appreciate any insight. Thanks all.
Howdy @Tushar, and congrats on taking the first step on your REI journey! Good question about Private Money Lenders. I found that @Matt Faircloth's book (Raising Private Capital) gives a great overview of who can be a private money lender and where you can find them, as well as the broad-strokes process.
I've been doing PML deals for about a year now as the money provider. For me it's a great passive way to invest in real estate. For you as the deal provider, you can negotiate loan terms can be a great deal more flexible. You can try and negotiate almost every aspect of the deal. Some examples include:
- 0% down
- interest only payments with a final balloon payment
- deferred payment until your cash out refinance
- potentially fast (2 week) closing
- ...And more
These benefits come at the cost of paying a higher interest rate and typically a few points. Good luck on deals two, three... etc!
@Greg Moran - Thank you for your insight. This has been helpful. I will definitely check out the book and looking forward to learning and investing more!
@Tushar Mukhija I like using HML when I have a BRRRR. I put in a downpayment and they carry the balance plus a large portion (if not all) of the rehab. I force the value of the property, then go back to the bank and do a rate and term refinance (or cashout if I'm lucky) and pull as much of my own money out as I can and move onto the next project.
The other option, if you are going to buy retail, is to have a PML carry the note for you (not the bank) and you can negotiate the terms (downpayment, rate, amortization, etc). Coach Carson did a wonderful podcast on the Investing For Good Show were he talked about how he uses PML for purchases, and not banks.