The money that you borrow
As a real estate investor you need to be able to borrow money.
Hard Money for Rehabs
Hard money means that you get a loan from a hard money lender
- Generally you don’t have to use your own money for hard money lender
- It’s based on the properties ARV value, after repair value.
- As an example. Let’s say you have a rundown property that the arv value is $100,000,
- The hard money lender will lend generally 65% of the ARV.
- Your job as a real estate investor is to buy the property for less than the ARV including the repair costs.
- Let’s say a cost $10,000 to repair the property to be able to sell it
- So your purchase price has to be
- $100,000 – $65,000 – $10,000 = $55,000
- And to be careful, it should be less than the 55,000 because there’s mistakes that are made when you repair a property,
- So your offer might be $45,000 in cash.
Private Lender
Private lender is a good way to buy properties. I generally spend a lot of time marketing for new private lenders. I teach the perspective private lender that they can use their IRA money to get a good way to return quickly.
Let’s say that the private lender has $200,000 in their IRA.
They go to a special custodian that will liquidate some of the $200,000 in their IRA, to cash, and they can use that money in the name of their Ira to lend to me the investor.
I generally offer 8 to 10% to use the money for 6 months.
This is a cheaper alternative than hard money.
I explained to the private lender that there’s very little risk involved because of the loan value is less than 65%, meaning that the loan and First Position will be no more than 65% of value.
And he gets his money back quickly.
The real rate of return is not 8 to 10%, because I use it for 6 months, so the rate of return is 16% to 20% annual,