“I need to find some private money, I will not pay 14% interest through some lender at an investment club as I only charge 12% interest to my buyers. With lot rent included in the monthly rental amount, I can not make a penny monthly.”
This statement goes against everything regarding private money from the lenders aspect! I’m not trying to burst your bubble or hopes for finding private money I just want to inform you about the realities of using it and how it works…
First off a private lender takes a fairly large leap of faith every time they take on a new borrower, they are trusting you to make the payments or fulfill the agreement what ever it happens to be. The LAST thing they want to do is repo the property which is likely outside their local area.
On the lenders end the ONLY thing I’m looking at is how am I going to get the money back if everything goes south, not how I’m going to recover the “potential profit”. You want 10k per deal at something less than 12%, on a day one loss it would take a lender 4 of these loans and 5 years at 12% to recover from that one loss without anything left over for profit… Would you work for free or let someone else use $40k of your money for free for 5 years?
Hard money lenders, private money lenders, or what ever else you want to call them are normally investing in an individual NOT the collateral. Do you have a list of private lender references to increase lender confidence? This is the easiest way get better rates unless you are willing to make it a no brainer with collateral it just takes a long time to build a network. Using collateral you will need to be at 25-50% of the collateral value depending on if there is land included to get what you are looking for.
Let’s say you decide to go the collateral route and need 10k to do the next deal. Just for example lets say you have 2 homes that you paid 10k each for (which is to much in a park IMHO) which is the true wholesale cash (collateral) value of the homes backed by 2 notes totaling hopefully 40k. If a lender gave you 10k secured by these 2 homes they would be at 25% of note value which would allow them to recover their money if 1 note went bad on day one, it also puts them at 50% of the wholesale value which means that if both notes go back they can most likely fire sale both homes even with damage and still break even.
You could likely get what you are looking for under this setup but my impression is that you are wanting 100% of the note value giving them the interest earned… I only know of one person that has been able to pull this off to any degree and it’s a far cry from reliable as of now from my understanding and he’s one hell of a salesman.
If you are doing deals properly and earning respectable returns there is plenty to go around to make the deals happen. Lets say you are buying homes for 10k and selling them for 20k, 12% for 84 months payable $350.05 a month. YOUR yield on the deal is 39.59%, assuming you decide it’s more important to do the next deal than keep your interest rate under 12% you agree to borrow money against the note at 18% with the stipulation that you can postpone say 3 payments over the term in the event that the unit goes vacant. 10k same terms at 18% your payments would be just over $210 allowing you to pocket $140 a month with some level of security that you won’t have to make the payments IF you do your job with the deal. It’s a situation of give & take.
If you can’t give this much your deals are too skinny and you are most likely going to get burned somewhere down the line. The further you stray from Lonnie’s advice in other people