Private Lenders
You'll never need to go to a bank to borrow money again once you learn how to find and work with private lenders. A private lender is a person who has some extra money sitting in the bank or in an IRA and who will lend you that money for your real estate deals. Not all lenders want monthly payments. Some prefer to share in the equity or appreciation. At CashFlowDepot.com we'll teach you how to find private lenders and how to match their needs to your real estate project.
Some Private Lenders Like Shared Appreciation Loans
There's a major difference between sharing EQUITY with another person and sharing APPRECIATION via financing. The LENDER stands outside all the problems and liabilities of fee title ownership with clear rights to the first profits OFF THE TOP. The OWNER of a fractional property interest, on the other hand, can become embroiled in all the management, maintenance and regulations and EPA liability associated with income property.
Claude wanted to sell a house to Lana but she couldn't qualify for the $100,000 loan required to buy the house. The maximum loan amount that the conventional mortgage lender would approve was $75,000. So Claude agreed to sell the house for the $75,000 for which she was approved, and to carry the balance of $25,000 in a Shared Appreciation Loan.
To do this, Claude wrapped the new $75,000 institutional first mortgage with a 2nd mortgage in the amount of $100,000. The wrap around debt carried the same interest and payments as the first lien. This caused his wrap loan to AMORTIZE IN REVERSE, since payments pegged to amortize a $75,000 loan were insufficient to cover interest on the whole $100,000 after taxes, insurance and principal.
The loan also contained language which shared all appreciation in price over $100,000 on a 50/50 basis once the $100,000 plus accrued interest had been paid to Claude.
BENEFITS: Claude gets a cash out sale that pays off his old personally guaranteed loan, relieving him from loan liability; and replacing it with a new loan that has a growing equity because of the accruing and compounding interest. Lana gets her own home, tax benefits, and low payments together with a share of the Equity. Everyone is happy, but Claude is happiest.