I got a call this morning from a private lender that said he will loan me 100% of purchase price plus 100% of rehab costs.
He wants 4-6 Points which he says will be added to loan and he wants interest and he wants 50% of the profits.
He will loan on the value of the property with no upfront fees. No Credit checks.
He says he can have the money available in 48 hours.
He says he has been loaning to investors for 30 years.
I come across these insane deals that I fast flip to rehabbers. I sometimes think I would like to try rehabbing for bigger profits.
However this lenders prices seem to be outrageous to me, maybe he’s a lecherous old man with crooked fingers living alone and counting his cash in his gated mansion looking for newbie rehabbers to snare.
Or maybe it’s not a bad deal for someone with no other resources for cash?.
What would you do?
Basically you’re getting all the money you need, without risking a cent of your own.
And the problem is?
Just kidding…
This is probably just a tad more expensive than bringing in a partner.
At the same time, a legitimate partner would want you to contribute to the rehab costs… or something tangible, besides ‘finding the deal.’
And he may still want 50% of the deal. However, a partner is less likely to charge an interest rate on the money invested. However, some partners won’t come aboard without an “opportunity cost” reimbursement offer. That is, what will it cost the partner to cough up money for your scam? ( I mean project)
Meantime the lender financing you’re asking about, would be reserved for an extremely high-risk project. One that is impossible to attract cheaper financing for. High-risk could mean YOU are the high risk. Or it could mean both…
To answer your original question… “Yes.”
However, you’re not likely to get your legs broken, if the deal goes wheels up.
The lenders that you should actually avoid, are the ones that want fees paid up front. These are notorious for theft and non-performance. It would be anecdotal if you weren’t screwed by this “lender.”
I’m doing some calculations here.
On a recent house, I got it on contract for 30K, ARV is $75K
It needed $25K in Rehab.
Let’s say $2,000 in points and interest.
It takes 3-4 months to gut this place and rehab it.
Sell if fast for $70,000
57K subtracted from 70K is $13,000 Profit
Split 2 ways is only $6,500
When your looking at 3-4 or more months in time. And possible rehab cost over runs. Then City permits and god knows what else.
I made more than that wholesaling it in 2 weeks.
It would have to be an exceptional deal to use this guy’s money.
I’m looking for a private cash lender that would be happy with earning 7%
Well, you’ve just illustrated why we need to get into the three, four, five hundred thousand fixer deals.
Why not try using the same percentages, but starting with an ARV of $500,000, and see what the profits in dollars are…
Those low-end deals just don’t push off enough dollars to be worth splitting.
Javipa, You have given me a lot to think about and digest.
I occasionally come across these high end fixers with potential profits in the 100’s of thousands. Hmmmm
Sounds to me like you are dealing with a gap lender, they will do 100% financing and take 30-50% of net profit once house is fixed up and sold. They can be useful in deals where there are huge profit margins, but I normally do not reccommend using these type of lenders, but I do have access to them if needed.