Watch to learn how I financed my fixer-uppers, the difference between private lenders and hard money lenders, and which is the best option in my opinion.
Channel, hope you’ve had a good week so far about how i used a hard money lender to i’ve used a hard money lender and in depth about hard money lenders and the and private lenders. just a quick note, private what is a hard money lender? so a hard money lender is basically a professional lender. there are lenders,
Someone who will lend you money based on the property that you’re working on. so in my case let’s look at the example. so this property, like i’ve talked about in the past, the hard money lender in this situation, they’re going to ask you questions like okay and what’s the potential arv? now based on those
Two numbers; the rehab budget and the arv, they will evaluate if they want to lend you money on this deal. obviously they’re also going to look at your credit score, they’re going to look at your amount of experience and they’re gonna make sure that you have the right structure in place in terms of your llc and business
Checking account all that stuff because obviously they’re gonna have to collect their monthly payments from you. lender looked at this deal and said okay goziem, gozvestor this deal we’re gonna lend you about 175k and let me break down the numbers. 120k property and then 55k will be the rehab budget
Remember is that they’re gonna add interest rates. so for my deal the interest rates were about 9.9%. 9.9%. the origination points were 2.5%, money lenders there’s going to be all these of and watch out for-documentation fee $995. so we have to remember those fees because you have to add them up and see
After you add all those fees and then the monthly interest payment for this deal was about $1450. and the length of the loan, remember what i said the loan amount was 175k. the length of the loan penalty for this loan. so you take all that, about, the 120k for the purchase price, up all those other fees that i talked
About. origination fee which is $4,400, the documentation fee $995, the title fee $875, the escrow $395, and then the insurance 2k. you add that all up and then you see what your total cost for that money is and don’t forget the interest payments as well which for my situation it was about $1,450. as you can
See from this example with all the fees i’m talking about, and all the interest payments, you know that hard money lenders are not cheap, they’re not cheap. so it is very very important that you analyze your deal and see after all these fees and after you deal with the selling cost and the closing cost and the real estate
Agent fees commission are you going to make a profit out of this? because these things matter, we’re not here to lose, we’re not here to lose money. we’re here to create win-win situations so be very very careful when you’re going for hard money lenders. you make sure that the deal that give you a good amount
Of profit once all is said and done and that’s why you have to add all those fees because after you’ve added all the and i have to pay the agent fees, what am i left with? what are you left with? as you can see things can get quite careful and make sure you do the numbers. i know many people don’t like to do
Math but when you’re an investor especially when you’re a real estate investor, math is very important and that’s why i always talk to my fellow investors. i always get feedback, sit down with a few people, run the numbers you know get a second opinion, beauty of being in a community right you can get feedback
From other investors who are much more experienced and you know much more savvy. i won’t say much more savy than i am but at least they’ve been there, done that and they can say hey about this, how about that, so that’s just my advice to you. always do your due diligence so what’s the difference between a private
Well a private money lender is somebody they’re just people. it could be your it could be people that you work with, it could be anyone that you’ve built a relationship with. and the cool thing about private money lenders is that all these fees that we talked about, if they trust you, if they believe that you can
Provide them a return on their investment then they’re willing to lend to you. and the cool thing talk to them and tell them what your plan is it all depends on the amount of money that they’re willing to give knowing that they’re going to earn a return on their investment once that particular deal is done. and here’s a
Cool thing about being a private lender. i’ve been a private lender on a few deals to some other investors in the community that i’m involved with and i’ve earned 10% returns, sometimes 15% return on the money that i’ve lent to them for their fix and flip deals. so it’s pretty cool and remember this, that you
Lend to, it has to be backed up with the real estate, with the property and make sure you have what i call a document signed. something called a promissory note, a promissory note binds the money that you’re lending private money lender is that you could either earn equity or you can earn interest. the deals
I get paid every month based on the interest that i’ve said i’m gonna, i’ve signed with the investor and then once the deal is closed i get my initial funding plus the interest payments that i’ve been getting every what every month for six months or seven months or eight months depending on the terms you’ve signed with
That investor. as you can see being a private money lender is pretty cool and i’m also, in the near future, i’ll be working with private money lenders, people who i’ve worked with, people who i’ve built a relationship with and we’re going to be working on deals, going to institutional lenders with all those
So starting out you most likely will be using hard money lenders but make sure you shop around, terms because my first deal i used a hard money lender that did not provide a rehab budget. my second deal, in terms of my fixer upper, i used a hard money lender that provided rehab funds. so every lender is different,
Every hard money lender is different and that’s what hard money lenders are. there are different criteria, different ways that they charge you; pre penalty, no pre-penalty for paying it ahead of time. which like i said what is a private lender? a relationship with, it could be a colleague, basically
It’s someone who is trying to earn a return on their investment instead of it sitting in their 401k account or their stock market not earning a lot, they could lend you that money and know that hey i can earn more, earn an interest, closed. so treat your private lenders with respect you know be clear to them, let
Them know what they’re getting into, when the project is likely to get finished and what they’re likely to get back in return and remember two things. there could either be an equity partner whereby they’re going to earn a percentage of the profits- that’s what i mean by equity, or there could be an interest only
Partner basically you’re giving them let’s say after the deal is closed, let’s say the deal is closed and you earn 40k of profit, well but if they’re an equity partner they’re so that’s that with private money lenders, hard many lenders, hopefully that was clear and i’ll see you soon. don’t forget to subscribe and
Leave your comments, obviously this is not a comprehensive course on real estate investing but i’m just sharing with you my knowledge, my wisdom, my experience, and hopefully you’re getting value from that so take care and i’ll see you soon. bye for now!
Transcribed from video
Financing Your Deals| Private Lenders vs Hard Money Lenders By Gozvestor
