Have you ever had a deal where you needed short-term private money funding?
There are often situations where you need cash to close a deal… but don’t need to borrow it for a long period of time.
- Maybe you’re flipping a deal and already have a buyer in place… but don’t want to juggle a double closing…
- Perhaps you want to do minimal repairs to the property before you flip it…
- Or let’s say you have the ability to refinance the property but need purchase financing…
Having access to short-term financing can be quite valuable.
How To Structure Short-Term Private Money Loans
Several years ago, I discovered a deal off Dorchester Road in North Charleston and got most of it seller-financed. I only needed $20k in cash to close and planned on flipping it quickly.
To borrow the funds, I offered my private lender a $500 flat fee.
This may not seem like a lot… but I only borrowed $20k, and it was a heck of a lot more than my private lender would have earned in a CD.
Paying a flat fee is the primary strategy that I’ve used when structuring short-term private money loans. It’s simple and easy to understand. And that goes a long way when getting private money.
Another strategy I’ve used before is to include a prepayment penalty in the mortgage or deed of trust.
Prepayment penalties are usually expressed as a percent of the outstanding balance at the time of prepayment, or as a specified number of months of interest as in this example…
I bought a house in Goose Creek, SC, and a guy who I met at our local REIA funded it. I borrowed the funds for four months but knew that I would flip it within a month or two.
My lender wanted to make sure it was worth his while… so we included a prepayment penalty that stated that he would get the full, four month’s worth of interest… even if we paid the loan off prior to the 4 month term.
This was a big win-win. My private lender made a great return. I didn’t have to use one penny of my own money or credit to do the deal. AND I made over $21,000 in profit!
It makes sense to use short-term private money… with the right structure.
After going the trial-and-error route, I found that these two strategies work, and I’ve used them to structure these types of loans in successful, real world deals.
What kind of a short-term loan opportunities can you create that will provide a great ROI for both you and your private lender?
For more information on getting private money, this video will show you how to find local private lenders in minutes from your computer.