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[Case Study] – 12.3% p.a. Return from A Private Money Lending Investment

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See how this investor from Minneapolis MN earned more than 12% p.a. by funding a private money loan for a real estate investor in Pennsylvania through the Garnaco Private Lending Program

  • Private Lending Money Lending Case Study Dec 2022
David Garner
David Garner
Published On: December 5th, 2022

Private Money Lending Case Study

Today, we’re bringing you another case study of a completed investment from the Garnaco Private Lending Program, all the way from origination through payoff.

You’ll see how C. W. cashed out with a 12.3% p.a. return on his investment after using his family trust to fund a loan for a real estate investor in Pennsylvania.

Here’s what this deal looked like for this investor:

  • Origination Date: February 3rd 2021
  • Payoff Date: October 7th 2022
  • Amount Funded: $55,000
  • Points: $800
  • Term Interest: $8,250
  • Payoff: $57,215
  • Total Return: $11,265
  • Total ROI: 20.5%
  • Annualized ROI: 12.4% p.a.

Now, let’s take a closer look at how this deal played out…

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The Proposed Investment

Private Lending Case Study 217 Sheridan

Garnaco’s property investment division had identified a potential acquisition for its long-term rental portfolio in New Castle, PA.

The property was being acquired below market value but required some renovation in order bring the physical condition to the standard required to achieve full market rent in the local market.

There was an existing tenant residing in the property who had been in place for some years and was paying $725 per month.

Rents had not been increased since the original tenancy was signed some years prior, but there was some much-needed maintenance required in order to increase rents to market standard.

Market rent was estimated to be around $800 to $900 per month once the planned renovation work has been completed.

The borrower, Garnaco Property Holdings, (PA), LLC, had already completed several similar projects in the neighbourhood, and had access to reliable contractors, and also had an in-house property manager.

Property Images

The property, located at 217 W Sheridan Avenue in New Castle, PA, was in good general condition, with some cosmetic repairs required inside, along with some external repairs to the roof and siding.

Private Money Lending Case Study 217 W Sheridan Before Renovation

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The Plan

Garnaco’s short-term plan was to acquire and renovate the home and increase rents to market standards with the existing tenant.

The exit ‘Plan A’ for the lender involved Garnaco securing a refinance loan within 36 months to pay back the private money loan and retain the property.

Here’s what the deal looked like for Garnaco.

  • Purchase Price: $42,000
  • Closing Costs: $8,951
  • Renovation Budget: $10,000
  • Total Project Budget: $60,951

Garnaco commissioned a Brokers Price Opinion which indicated an after-repair value (ARV) of $91,300 once the renovation was complete.

The Borrower was looking for a private money lender prepared to lend up to 60% of the ARV, (90% of the project).

Private Money Loan Offer and Terms

A private money lending loan request was submitted to an independent Broker along with some supporting documentation, including:

  • Purchase Contract
  • Brokers Price Opinion
  • Property Images
  • Scope of Work

The Broker introduced the lending opportunity to C.W., a private investor from MN, who offered to fund 100% of the loan subject to due diligence and underwriting.

The following loan terms were agreed:

  • Principal Balance: $55,000
  • Note Discount: ($0)
  • Net Funding Amount: $55,000
  • Term: 36 Months
  • Interest Rate: 9.00%
  • Points: $800
  • Payoff Bonus: $1,500
  • Lending Ratio: 60% to LTV (ARV)

In this case, C.W. agreed to fund the full amount of $55,000 for a term of 36 months.

Form the lender’s perspective, if the investment were to run full term, it would look like this:

  • Net Investment: $55,000
  • Term: 36 Months
  • Points: $800
  • Interest: $14,850
  • Payoff: $56,500
  • Total Return: $72,150
  • Net Profit: $17,150
  • Total ROI: 31.2%
  • Annualized ROI: 10.4% p.a.

Because the balloon payment at payoff included a further payment of $1,500, the lender’s ROI would increase if the Borrower were to pay back the loan ahead of time.

Due Diligence and Underwriting

Once funding was agreed in principle, Garnaco made available the following documentation for due diligence and underwriting:

  • Company Registration Documents
  • Register of Members
  • Operating Agreement
  • Corporate Resolutions
  • Certificate of Good Standing
  • Principal’s Personal Credit Report
  • Principal’s Personal Background Check

In line with good private lending practice, the lender assessed the investment based on the 4 P’s…

  1. People
  2. Property
  3. Paperwork
  4. Plan

After reviewing the supporting documentation and loan/deed paperwork, C.W. agreed to fund the loan at closing.

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Closing the Private Money Loan

Heritage Security and Service Co., conducted closing which was scheduled for 3rd February, 2021.

The following documentation was provided to the Borrower at or before closing:

  • Lenders Title Insurance Policy
  • Property Insurance (lender named as Loss Payee)
  • Settlement Statement

The lender funded escrow 24 hours prior to closing, and once the property purchase was complete, the borrower initiated the first pro-rated interest payment to the lender on 25th February.

The existing tenant decided to vacate the property, and Garnaco carried out the renovation of the property as per the Scope of Work.

The total rehab spend came in under budget at $7,450.

The property was then promptly leased to a new long-term tenant for $840/month.

Loan Servicing and Payoff

Monthly interest payments were serviced through ZimpleMoney, with automatic ACH transfers scheduled for 25th of every month.

The lender received monthly payments every month between February 2021 and September 2022.

In October 2022, due to the property’s appraised value increasing to $130,000, the Borrower was able to secure a refinance loan for $84,000.

The borrower’s new loan closed on 7th October 2022, and C.W. received a wire transfer for the full payoff amount, including prorated monthly interest, and the $1,500 payoff bonus.

Here’s what the investment looked like at the point of repayment:

  • Origination Date: February 3rd 2021
  • Payoff Date: October 7th 2022
  • Amount Funded: $55,000
  • Points: $800
  • Term Interest: $8,250
  • Payoff: $57,215
  • Total Return: $11,265
  • Total ROI: 20.5%
  • Annualized ROI: 12.4% p.a.

Overall, C.W.’s investment lasted for 20 months total from origination through payoff.

In total, C.W. earned a profit of $11,265, equating to an annualized 12.3% p.a. return on investment.

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