I am working with an investor who does short sales and when he has more properties than he can handle, he offers them to other investors. Here are the particulars:
• Single-Family, nice neighborhood
• Totally gutted except for kitchen which has been totally remodeled
• ARV $380 to $390
• $70K in repairs
I want to offer the person doing the short sale $170K since the house is virtually gutted, he will offer the bank less to make his money.
• Having trouble getting a hard money loan because I was recently laid-off and can’t show income (I thought they looked more at the value of the property)
• Credit scores 640, 627 & 594 (major error just corrected, so they should be going up shortly)
I do have a self-directed IRA with $11K I can use for the deal
I have found a private investor, but am not sure how to structure a deal –
• Do I offer her the same terms a true HML would get?
• Do I offer her a flat percentage with no points?
• Do I ask her to finance the repairs, the purchase or both ? (I have about $20K including the IRA to put towards the deal, but it is all the cash I have and I don’t want to use it all)
• Do I assign property to her, as she may want it, but wants me to do the rehab?
Can someone suggest how I might structure this deal?
I think typically when you work with a private lender you offer them an opportunity to invest in your project at something like 10-12% interest. Some people will offer 12% paid out when you close with your end buyer. Or something lower like 10% interest with monthly payments. So if your investor invests 180k or so, you’d divide the annual interest by 12 and pay them 1500 each month, then when you close you’ll pay the rest of the interest plus principle.
Thanks for your advice awarunn.
I can offer some information based on what I’ve learned which is you can structure this deal anyway you want to…be as creative as you have to be to make it work (until you find an arrangement that each of you are happy with). For example, you could have the private money lender lend the purchase and repair cost ($170K + 70K) to you: 1. negotiate the repayment of full investment and then a percentage of profit after rehab and sale (don’t offer any more than 50% of profit…start at 20-25% and try to keep as much of the profit as possible). 2. Or attempt to reach agreement on an interst rate which could be structured as follows: 10% interst only payments monthly during rehab and sale and payback full investment ($240K) when sold. If you are paying 12% for the money, use the leverage of paying such high amount by negotiating terms such as no monthly payments and the 12% total for each month for which you used the money will be paid in lump sum after sale of property, along with the full investment of the private money lender ($240K).
Just a few things I thought may help.