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Private Money Lending Case Study July 2022 II

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Lending money to real estate investors can be a great way to earn passive income. Here's how a busy US Air Force veteran turned company-owner from Colorado earned double-digit returns over 18 months with private money lending...

David Garner

Published On: August 9th, 2022

Private Money Lending Case Study

Welcome to another real-life private money lending case study.

This is the story of Kris, a US Air Force veteran from Colorado, now a full-time business owner, funded a private loan for a real estate investor based out of Pennsylvania through the Garnaco Private Money Lending Program

Read on to find out exactly how this deal went down, from funding in December 2020, through to payoff 18 months later in July 2022.

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The Proposed Investment

This property at 1203 Cunningham Avenue in New Castle, PA was being purchased by a local real estate investor (the Borrower) who already owned over 100 properties.

The Borrower identified the property as a potential off-market purchase as it was on the same street as a number of homes already owned by the company and had been sitting vacant for some time.

They were able to make contact with the homeowner, a local landlord, and negotiate an all-cash purchase of the home.

Initially, the house was intended to be a rental property, with a long-term view to sell the home via the company’s affordable housing program.

Here’s what the deal looked like for the Borrower.

Purchase Price: $20,000
Closing Costs: $6,800
Renovation Budget: $6,850
Total Project Budget: $33,650

The Borrower commissioned a Brokers Price Opinion that indicated the after repair value (ARV) of the property would be circa. $50,000 to $60,000.

The proposed a project plan involved the renovation of the property to a standard commensurate to the local rental market, and then lease the property to a long-term tenant for around $700 per month.

As the Borrower had already completed a number of similar projects on the same street that were successfully renovated and rented, they had a demonstrable track record as well as access to an experienced local contracting team.

The Borrower planned to refinance the property with another lender within 36 months, and was looking for a private money lender prepared to lend up to 65% of the after repair value, equating to 90% to 100% of the total project budget.

Property Images Pre-Renovation

The home had been vacant for some time, and the previous landlord-owner had neglected and deferred much-needed maintenance.

Although in visibly poor condition, the property had ‘good bones’ with a solid roof, furnace, plumbing and electrics.

Private Lending Case Study 1203 Cunningham Before

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Due Diligence

As an experienced real estate investor with numerous successfully completed projects in their local market already on their record, they were able to demonstrate their capacity, capability and competency.

The Borrower made available the following documentation to support their loan request:

Company Registration Documents
Register of Members
Operating Agreement
Certificate of Good Standing
Principal’s Personal Credit Report
Principal’s Personal Background Check
Brokers Price Opinion
Scope of Work

After vetting the borrower, property, and project plan, a lender based out of Colorado agreed to fund the loan via the Garnaco Private Lending Program.

Deal Terms

The lender for this deal, Kris, was an ex-US Air Force veteran who now ran his own cyber security company. He was looking for passive investments that paid a good return with a low level of volatility and ongoing oversight due to his busy schedule.

Kris was introduced to private money lending through a 3rd party broker, and had already funded a small number of loans.

The following loan terms were agreed:

Loan Amount: $33,000
Term: 36 Months
Interest Rate: 9.00%
Points: $300
Lending Ratio: 65% to ARV

In this case, the lender agreed to fund 65% of after repair value, which covered the vast majority of the total project costs 100% of the project costs.

Closing, Servicing and Insurance

Closing was conducted through Heritage Security and Service Co., and a couple of small property tax liens and other title issues were cleared up and the closing was scheduled for on 31st December 2020.

At closing, the Borrower took title to the property, the Lenders funds were distributed per the settlement statement produced by Heritage, including a dispersal of points to the Lender.

The Borrower paid for lenders title insurance, and the Lender was also named as 1st Loss Payee on the Borrowers hazard insurance.

The loan was serviced directly between lender and borrower, with monthly payments of $247.50 paid by ACH bank transfer on 25th of every month.

Renovation and Payoff

The Borrower carried out a largely cosmetic renovation as per the Scope of Work and secured a long-term lease with a tenant all within 90 days of closing.

Private Money Lending Case Study 1203 Cunningham After

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The lender received monthly payments every month between January 2021 through June 2022.

The Borrower then secured a refinance loan for $48,750 due to the property’s value increasing significantly, and achieving a monthly rent of $800/month at lease renewal in 2022.

The borrower’s new loan closed on 24th June 2022, and Kris received a wire transfer for the full amount of $33,000 on 27th July.

Overall, this short term investment lasted for 18 months from funding through payoff, and earned Kris 14.5% on his money, which he chose to reinvest in another private money lending deal through the Garnaco Private Lending Program.

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Private Money Lending Case Study July 2022 II

David Garner