Millionaire Real Estate Investing with Jim Pellerin

Episode #101 - How To Use Private Financing For Your Real Estate Deal

September 10, 2020

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One of the ways you can finance your real estate investment deal is through private investors or private lenders.πŸ‘©β€πŸ’ΌπŸ‘¨β€πŸ’Ό

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There are private investors that are just going to give you a mortgage. Meaning, if you are buying a property, let's say for $300,000, and you put 20% down … so that's $60K. What the private investor will do is they will give the remaining funds and put a lien on your property, in the form of a mortgage. πŸ‘©β€πŸ’ΌπŸ‘¨β€πŸ’ΌπŸ’²πŸ˜οΈ

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The other thing is you can actually do is get a joint venture partner as a private investor.Β 

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They are not just a mortgage provider. They are part of the whole deal.Β 

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For example, let's say you're buying a property and you're going to fix and flip. You buy that property for $200,000 and it's actually worth $400,000 and you're going to put another $100,000 into it. So you are into it for $300,000. Depending on where you are in the relationship with that person, that person may lend you up to the entire $300,000 that's required to purchase the property and to actually do the renovation costs. πŸ˜οΈπŸ’²βš’οΈ

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Normally you are NOT going to get that kind of investment from somebody you have just met somebody that's new to you.Β 

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To do deals with these people, they may be willing to advance you more funds and they would be willing to have more skin in the game as you get into bigger and better deals and as you prove to them that you are creditworthy. πŸ‘πŸ€πŸ’³πŸ‘

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So the difference between private investors and the private lenders that you might get through a mortgage broker, is that the private investor becomes more of a joint venture partner. And by that, what I mean is they are going to share in the risks and the rewards. πŸ‘©β€πŸ’ΌπŸ€πŸ‘¨β€πŸ’ΌπŸŽ–οΈ

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It's not just β€œHey, I'll give you this $300,000 and we're going to make a $100,000 profit. I'm going to get my $300,000 back plus another $50,000 profit split. And that's all going to happen in six months, right?” 

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If there are changes in the cost of the renovations, they are going to know about this, and their returns are going to be reduced. πŸ’°βš’οΈπŸ“‰

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If you do the work in less time and there is actually a higher profit, they're also going to benefit.Β 

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Normally when I invest with joint venture partners, it's a 50 / 50 deal, meaning we're going to split all of the profits and any losses 50 / 50.Β 

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And normally this is for a shorter period of time if you are doing a fix and flip for, you know, three to six months. β³βš’οΈ

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However, I have had joint venture partners on rent-to-own deals where the partner has gone out, purchased the entire property, and stayed on the property for three years. At the end of the three years, we sold the property to the tenant-buyer and whatever profit was made through that whole transaction we split it 50/50. πŸ’°πŸ€πŸ˜οΈβž—

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I say 50 / 50 because that is normally the split that I want to do with any of my investors.Β 

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So, what the split is, is something to consider as well when you're working with joint venture partners or investors. βž—πŸ€πŸ‘©β€πŸ’ΌπŸ‘¨β€πŸ’Ό

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