does anyone here work with private investors? i was listening to a little bit of alan cowgills tapes and sounds interesting. houses that i would be buying in my market i would need anywhere from 40-70k per house deal, when buying foreclosures or short sales, i think it would be easy to find people who could come up with 10-15k but i dont know about 40-70. can you put 3-4 private investors into one deal?
another question i have is wouldnt it be cheaper if you have a line of credit to buy these properties then refi on them and get a loan from a lender at a much lower rate then paying 12-15% to a private lender? i would probably be keeping these houses for at least a year since im selling these all as rent to owns.
would like to talk to anyone out there who borrows from private lenders/not hard money lenders, to see what your strategies are. i just think that paying 12-15% is really high, how can you make any cash flow or do you just look to get the interest payments taken care of?
i will be watching these responses myself as i too am looking for a better way…good question.
12 to 15% APR is cheap if no or low points. Most Private Lenders charge 50% of the profits (mine charges between 35 & 50% of the profits depending on the deal). They are somewhat justified because it could take some time to resell the place especially the way the current market is. And, if you add up all the closing points, interest, fees, etc of a HML it can wind up being the same or even more if you have to sit on the place for a while.
My PL will loan me $200K at a time and have it to me within 48-hrs (direct wire into my account). He also doesn’t withhold any needed rehab funds pending completed work inspections (no draw system - he gives me all the money at once).
Please don’t ask me for his number though - he has limited funds so I would be cutting my own throat if I gave it away.
I agree with you though regarding the use of cash lines of credit (but developed under your company name) in that it is the lower cost option. I am currently in the process of developing such lines of credit for my business - it takes some time though.
Another source is short term construction loans if your doing a rehab.
If you have your corp. or LLC set up correctly, you can apply for and receive lines of credit at good rates. Some banks like to see a history of 3 to 6 months, but others just want the business. Like garypettee said, it takes several months to get it all going, but you just continue opening new lines with more banks and draw cash out to deposit into your business account so the money will age and the cash balance stays high. Then your bank will usually give you a business line of credit that matches your average monthly cash balance over the account life. It keeps growing over time.
As for private lenders. When you get into borrowing from multiple lenders you have to register with the SEC and meet their guildelines. 10-15% simple interest is pretty normal for PI funds. The higher rates are for those who don’t need to be kept in the loop, and won’t bug you all the time. Try for monthly interest payments (8-10%) or quarterly interest (10-12%). Some PI money is available at 8% paid annually if you know where to look. I’m not telling but… Think about the people with IRA money earning below market non-guaranteed rates…