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From Hard Money to Partnerships: Creative Ways to Fund Your Next Real Estate Deal · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. So part A was the non
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  -owner occupied. Part B is the owner occupied
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  hard money loans. And this is a little bit unique
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  because not many people want to lend to other
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  people at a mortgage rate. Like if I could lend
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  to someone and charge them 7 % but my money's
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  tied up for 30 years, in general there's not
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  a lot of people that would do that versus just
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  putting their money in the S &P. And so there's,
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  you can still find And again, we're not in private
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  money, but we're more in hard money. There's
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  these companies. I happen to own one of them.
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  There's three other ones here because there's
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  a bunch of different ones, but they'll essentially
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  finance the home, buy it all cash, then sell
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  it to you on some sort of creative financing
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  like a lease option or a contract for deed. There's
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  still individuals that do this, but there's big
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  private companies that will do this for owner
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  occupied homes. Whereas the big DSCR lenders
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  are looking at it as an asset. They're looking
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  at you, the borrower, bringing skin in the game
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  and then selling it back to you. So part A, part
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  B, and the big difference is owner -occupied
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  versus non -owner -occupied on the hard money
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  side. Again, higher costs, higher origination,
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  all of that. But if you need to get a home and
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  you wanted a house hack, you wanted to do something
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  like this could be an option because non -owner
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  -occupied would not be. We've had people do the
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  house hack or use hard money for short -term
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  rentals or do adult foster care. If they need
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  their own personal residence and they absolutely
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  have to do it, that's an option. Okay, number
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  five, private money. To me, I define private
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  money as a person to a person. There's nobody
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  in the middle. If you are getting direct access
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  to someone's cash, self -directed IRA, or other
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  means of how they're funding, that's what I consider
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  private money. So I call this Uncle Bob. And
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  this is like... the gold standard of financing.
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  If you can do seller financing, great. But above
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  anything else, this private money can be the
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  quickest, fastest, and most flexible, depending
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  on if you've built a relationship and trust with
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  that individual. Because if someone's lending
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  you money, they're going to private you as the
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  borrower, and then number two, the asset. But
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  it's super It's like the Wild Wild West. You
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  can literally put down anything. It could be
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  secured. It could be unsecured. You could have
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  zero rate. You could have 10 points. You could
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  have a 10 % interest rate. You could have a 1
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  % interest rate. You could pay monthly interest
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  terms. You could pay no interest terms and get
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  all of it paid back at the back end. So there
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  is, besides not charging too much from a usury
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  law perspective, you can almost put anything
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  on a piece of paper. It's typically secured with
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  a mortgage. That would be in the best interest
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  of the person lending you money. You can also
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  lend on an unsecured loan. Just be careful you're
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  not getting any securities issues. But the greatest
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  example is just family, friends, mom, dad, other
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  investors. People are like, hey, I want to do
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  this rehab. I got this home under contract for
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  100. I'm going to put 25 into it. It's worth
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  200. Bank won't touch it. You can't get seller
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  financing. You just go to somebody with the private
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  money and be like, hey, If you gave me 125 ,000
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  and I gave you 150 ,000 back in six months, how
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  does that sound? Cool, that's a 20 % ROI. That
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  sounds really good to me, private money lender,
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  and assuming that you actually meet your scope,
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  work, and budget, everybody wins now if you spend
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  over money now gets a little bit hairy in the
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  private money investor if they're secured has
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  to take over the property finish it out so you
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  want to make sure both you and them are secured
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  in the asset and you can get creative with who's
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  on title who's on mortgage there's some joint
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  ventures that you can do but in general private
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  money typically is taking a first position partnerships
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  this is by far my favorite and not that I would
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  recommend starting here but you can get similar
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  to private money, you can get super creative
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  with partnerships. So, there's usually one of
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  two ways that people do partnerships. You have
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  party A and party B combined, and you're both
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  in it together. Think of it like, almost like
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  a marriage. We are both gonna contribute time,
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  we're combining our finances, we're gonna live
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  together, we're gonna do all this stuff, and
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  we are going to be committed to this Venture
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  whatever your operating agreement spells out.
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  So it's not it's not this specific Well, you
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  have it's still great to combine different skill
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  sets, but it's typically hey You like Batman.
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  I like Batman. Let's get together and play superhero
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  stuff. You like real estate. I like real estate
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  Let's get together do some real estate and you
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  still want to have a you know, all of your documents
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  in a row But that's really getting business married
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  number two is probably this the most common that
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  I see You got people with deals finding people
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  with money. And that's like the economics 101.
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  If you have a good deal, it usually meets someone
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  with money. So typically one person finds the
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  deal, the other person brings the money, you
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  go on it together, and then you split the profits.
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  So let's break down a little bit more into. an
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  example joint venture before we go into this
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  table of what like a single family turnkey would
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  look like for all the different scenarios. So
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  if you want to do a joint venture, there's typical
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  questions. Is it the deal provider or who's taking
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  title? Question number one, is it one person?
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  Is it two people? Is it an LLC? Is it joint tenants
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  in common? So whoever's taking title typically
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  is gonna indicate control of the asset. Then
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  number two is, who's the mortgage? So sometimes
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  the deal provider can take title and the money
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  partner brings the mortgage. And you can structure
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  these both ways. There's debt partnerships and
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  equity partnerships. Debt is strictly what it's,
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  and then you can have a third, which is both.
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  So debt is strictly, I'm loaning you money, it's
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  an interest rate, it's points, it's a payback
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  period, that's it. To a hundred percent equity
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  partner. This is what I do in one of my businesses
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  I say anybody that can find a 70 % rule. I'll
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  fund it a hundred percent We'll split the profits
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  50 -50. So if someone finds a $200 ,000 house
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  that they can buy for a hundred put 20 grand
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  into Like that's a great deal for me like oh
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  sure. I'll fund your deal 120k you put in no
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  money. I'll pay for the holding costs I'll pay
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  for everything there's 40 to 50k that we get
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  to split. We each get to walk away with 20 or
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  50k. You are the deal provider putting no money
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  in there, but it's a great deal. If you can close
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  it yourself, of course, you know, take all of
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  the profit, but that would be different between
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  paying someone $1 ,200 a month to borrow their
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  money versus someone else funding your deal 100
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  % and then you splitting the equity at the end.
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  And then there's kind of a third which is the
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  hybrid, which is someone gets debt payments and
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  then some sort of equity kicker, 70 -30 split
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  and 80 -20, a 90 -10 with some sort of preferred
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  return in that structure. So again, those are
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  super creative. So if I put this all into a table
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  on an example, $200 ,000 turnkey property, seller
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  finance, big bank, local bank, hard money, private
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  money, partnerships, cash needed, typical interest
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  rates that I see Fees and points along with speed.
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  And so this could just be a general table of
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  like, hey, if I have to close fast, typically
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  it's seller financing, private money or a partnership.
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  Hard money being a little bit quicker, but big
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  bank and local bank, there's no way, you know,
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  maybe local bank, if you're doing in -house and
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  they can get the title work and they don't need
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  a third party appraisal, that's great, but all
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  these other ones like, okay, that's fee. If I
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  want to go lowest cash in, again, similar things,
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  but when you look at the interest rate, okay,
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  that could be your highest cost, right? 10 %
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  or 12 % for hard money or private money. So you're
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  paying for that and fees on top of it versus
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  the big bank or the local bank because you have
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  a lot more skin in the game. And there's less
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  risk to the banks. So if you're like, oh, somewhere
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  between zero and $45 ,000, somewhere between
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  0 % and a 12 % interest rate, somewhere between
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  0 % fees and 6 % fees, and then somewhere between
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  I can close in a week, So I'm going to close
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  in 60 days. That would be like a typical single
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  -family rental. Now, similar, but on a flip.
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  You're buying it for $100, you're putting $50
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  into it, and the ARV is $200. If it's seller
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  finance, typically you could get it with no or
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  little money down and maybe just do the rehab
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  yourself. So you're putting in the $50K for a
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  Big bank, if it passes the appraisal, you're
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  gonna put in the 20 % down, but they really won't
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  fund the rehabs. You're gonna have to come in
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  with an additional 50K on top of that. So really
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  that cash needed would probably be something
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  more like 20K plus the 50K to get into it. For
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  the local bank, these ones will actually fund
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  the rehab for you. Similar to like the big bank
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  might do a 203k FHA loan or you can get creative
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  with what you can finance into something. But
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  the local bank will typically be less down because
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  they'll finance in. They'll see like, oh, it's
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  an ARV. I get what you're doing. We're going
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  to do a construction loan or some sort of interim
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  bridge loan where you have less cash down. For
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  the hard money, a lot of times they'll do LTV
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  or LTC, those loan to value or loan to cost.
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  It's typically a lot quicker. You can get a pre
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  -approval in about five seconds. You need the
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  cash to close. It's higher closing costs, higher
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  fees, but it's not as much closing costs as you
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  might need with like a 20 % down. And what's
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  tricky with the hard money is you got to front
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  the construction draws to get reimbursed. So
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  it's a little bit tricky if you have 10 % down
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  on the deal, which is 10K, and then you do 10K
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  draws. So you're going to have 20K out, get 10K
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  back, but then be spending another 10K. So you
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  basically need like a slush fund of money to
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  get through that. And then with the private money,
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  depending on how much cash they want to have
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  in the game, I mean, we've done it with zero
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  dollars. Same thing with partnerships where it's,
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  if you can get the private money, you just tell
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  people what you're doing and what works for them.
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  I'd always felt a little bit guilty asking people
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  for money. When in fact some people like oh you
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  can beat the banks point one percent interest
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  rate now right now with you know CDs You can
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  probably get something longer, but if you're
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  just like hey What if I gave you seven percent
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  on your money for six months and origination
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  point and you were secured by real estate? Like
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  that that's a pretty strong offer that you could
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  make to someone to make it work So if I had to
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  go into what's next we could talk a little bit
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  about the market conditions we could talk through
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  some different things, but One thing that I would
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  suggest is you have more time or capital. So
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  if you're like, I have a bunch of time, I don't
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  have capital, great. Your job is to find a deal
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  and find somebody with capital. You have a bunch
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  of capital, but you have no time. Your job is
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  to find someone with a bunch of time that can
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  find a deal. Maybe it's driving for dollars,
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  maybe it's cold calling, maybe it's whatever.
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  And there's just this awesome Symmetry that no
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  matter which one you have and the comment I always
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  gets if you have neither time nor money that
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  means you need to up your skill set and increase
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  your own personal dollar per hour because right
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  now you're kind of operating in the red and you're
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  maybe offering the the economy ten dollars per
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  hour of your time and really what you need to
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  do is work up to 15 20 or 25 dollars an hour
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  so that you can start buying back some of your
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  time or start saving some sort of capital. And
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  the fact could be is if you didn't have either,
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  you're going to have to leverage something. There's
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  something that you know that's a skill set. And
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  maybe it's just, hey, I know Paul. He's got a
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  lot of time. Hey, I know Jill. She's got a lot
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  of money. All I'm going to do is play matchmaker.
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  and I'm going to connect party A to party C and
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  I'm going to play party B and maybe take a finder's
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  fee for doing something like that which would
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  be about the only sliver of hack out of that
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  but in general it just kind of up in your time
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  and so just want to say quick thanks you can
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  learn more about me on some various things but
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  I will I will stop the slideshow and we can go
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  to any any other questions that you might have