Have great credit, not enough income. need private investors

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Have great credit, not enough income. need private investors

Jenny F.
Real Estate Investor · Baroda, MI · Member since 2008 · 204 posts · 2 votes

Hi all,

I have been here and on many other sites looking for insight on finding private investors to fund my purchases and rehabs but to no avail.

i have good credit but i cannot provide enough income to make banks even take me seriously. I have done 4 rehabs in total and would like to do many more but my hands are tied by the banks.

I own a construction company that is licensed and did this specifically for these rehabs (but we also have customers as well)

Hard money is too expensive. Is there such a thing as a private investor who will take 10%? using the property as collateral with either a first position lien or be on the deed along with me?

I live in a small county on lake michigan and NO ONE here is going to the auctions! I have had too much money pass over my head because I haven't the money to invest when i needed too. The area where i am purchasing is the only area left on the beach that isnt sky high to purchase and within the next two years it is going to explode. we dont have an rei club.

I don't have money to put down (its all tied up into property) and i don't want to make payments, just pay at closing when property sells....

i am building commercial credit here too but it takes a lot of time.

Thanks!

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y
    Originally posted by "SWMIReality":

    Hard money is too expensive. Is there such a thing as a private investor who will take 10%? using the property as collateral with either a first position lien or be on the deed along with me?

    If the difference between 10% to a private investor and hard money rates makes your deal unprofitable then you need better deals.

    I am not being flip. The private investors are a good path but you really should be able to find some deals that work using with hard money. It gives you more options when a great deal happens.

    Hard money might be expensive in comparison. Doing more deals where you make a profit is still better than passing on good deals just because hard money is expensive.

    Banks will want to lend to you when you have more money, more assets and more of a track record. They like to see income on your tax returns for a couple of years. Most contractors do not want to show a lot of taxable profits. The two are in conflict. Decide which way you want to go.

    Most of the time the big money is in the deals and contractors are available to work for REIs.

    Run the numbers on some of your best deals. Could you really not make a profit with hard money but there would be a profit with private funds at 10%? If it is true all the time the deals are rather thin. Many deals will never work for hard money but you would be surprised.

    In the past when I funded deals with hard money (as the lender) I found it very funny that borrowers wanted to split the profit rather than pay hard money rates. Once I walked them throw the math they realized half the profits from a good deal was more than the worst case with hard money. Others realized they had pretty thin deals where unexpected costs would wipe them out.

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  • Jenny F.
    OP
    Real Estate Investor · Baroda, MI · Member since 2008 · 204 posts · 2 votes
    18y

    This is exactly what i am talking about.

    I have talked to a couple of mortgage brokers who offer to set up the hard money but im looking at 7-10 points down, 20% down and 20% interest...AND i have to come up with all the repairs on my own...AND make monthly payments on top of that...with the last project i did that would have been 27k down, 1500.00 per month and 45k MORE of my own money just to fix it....

    If it works differently from this, please let me know....im willing to listen....

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  • Account Closed
    Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
    18y

    Forget the mortgage brokers if that is all they can do.

    Many hard money lenders who are worth working with will be very local. They do their own inspections. They will charge interest only or interest plus a few points. It depends on the state laws if it is legal for the actual lender to charge points (1 large state prevents this if you follow the usury rules).

    Your costs should be closer to 5 pints and 15% interest over about 6 months. Longer or shorter is possible. Higher or lower is possible.

    As I said before private money is likely to be cheaper but it is not the only way to fund a deal. If the deal is good enough and you do not have private funds then see if the numbers work with hard money. Some of the time hard money is less hassle as the person providing it is more experienced. Many hard money lenders are the folks who used to invest but now have more money than they have interest in getting their hands dirty.

    If a deal works with 10% money and not with hard money then what is wrong? Either the hard money is really expensive or the deal is pretty thin. If some small overruns would wipe out the profit the deal is too thin.

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  • Brice C.
    Real Estate Investor · Oroville, CA · Member since 2008 · 107 posts · 2 votes
    18y

    I would rather split profit on all my deals.
    I do use hard money too.

    The reason is that If I use an investor on a split my ROI is infinite as I have no investment. If I have no investment the down side is eliminated.
    Whereas with a hard money lender There are costs To me therefore I am investing some of my own money. I prefer using all my money to invest and pick up private investors so I can expand my investing. In the process I'm helping others to make far higher rates of return with their money than they ever thought possible. Getting 100 % annual rates of interest or better is so easy while most people are content to get 4 to 5 percent investing in a CD or they are happy getting 12 % in money markets or stocks. I went to an investment firm and spoke with a young lady. When I told her I wanted to earn 50 to 60 % she laughed at me and said that's not possible. She then proceeded to tell me that 12% would be a good return with little risk and that 16% would be very risky. I insisted on speaking with her manager who told me there are better performers out there that could earn me up to 20 % but they were very volatile and extremly risky.
    I then asked about reit's and several other possible options that I knew at the time were performing far better than they had both told me was possible. The manager knew of these and said he could set me up with better earnings.

    Moral................They make bigger commisions selling low performers........high performers sell them selves.

    There are lots of mis conceptions about what rate of return is a good rate of return.

    To me the best rate of return it the infinite rate

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