case studies
G. 6 Ways to Structure Private Money Deals!

This is an hour-long all-content video on how to find private money lenders, with six different ways to structure and fund real estate deals.

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Video Transcript Below

Hey, guys. Daniil Kleyman here and I’ve been long meaning to record this second content video for you on Private Money Structuring. This is a follow up and sort of builds and expands on the first private money structuring video and this one is going to be called Six Ways to Structure Private Money Deals. The goals are to learn how to structure private money deals with the most flexibility. Some of you who are watching are already doing private money deals. Some of you are just learning how to but I want to show you how to structure deals in the most flexible manner because that will allow you to create a lending scenario that is tailored to your potential lender’s risk and return appetite.

You’ll find that certain people that you deal with have a higher risk appetite and tolerance than others and will require a higher return than others. Lastly, I’m going to show you how to present your lending proposals in a very intelligent and organized manner which will allow you to look like a pro and obviously get funded. I’m going to use the Rehab Valuator property flipping software to show you how to structure these deals and present them. A lot of you who are watching are already Rehab Valuator Premium clients and are able to do everything that I am about to show you. Even if you have only the free version, you can use that software to structure your deals. You just can’t generate the presentations for your lenders.

If you don’t even have the free version of our software yet, go to www.rehabvaluator.com and download your copy so you can follow along with what I’m doing and so that you can start structuring deals in the same manner, and take notes and pay attention. It’s only worth your time to watch this video if you actually pay attention. If you take the time to learn what I’m about to teach you, you’ll be able to speak to potential lenders, as if you were a seasoned investor, even if you’ve never done a deal. This is not a short video but it will be full of “meat and potatoes.” If you’ve been following me and watching my videos, you know I hate fluff. There is not going to be any inspirational quotes or motivational speeches in this one and you get enough of that from the gurus.

I’ll also show you some ways to structure your deals quite differently from how most other investors do it. Again, this goes back to flexibility. By the way, if you haven’t watched the first private money structuring video yet, I would probably watch that first. You can find it under Case Studies on the Rehab Valuator site. You actually should have a menu above this video, if you’re on my site. Just look under case studies and then look under private money structuring and it’s about, a solid 45 minutes of content there. Let’s go over some basics first before we get into the nuts and bolts. What is private lending and why is it important to you in your real estate business?

Again, if you’ve watched the first video, this will be kind of a rehab … not a rehab, a recap. Again, I’m a foreigner, my English is not so good. This will be a recap of the introduction in that video, right? Primarily, there’s three major types of financing for residential investment real estate and again, for the purpose of this case study, because I can’t cover every niche, every exit strategy, I’m going to assume that you’re buying residential real estate, you rehabbing and flipping it. The same principles can be applied to other deals. Just for the purposes of this case study of this video, I’m going to assume that you are doing residential deals.

For residential investment real estate, there are really three types of financing, there’s bank financing, there’s hard money lenders and there’s private money lenders. Are there other sources of capital? Sure, but these are the three primary ones. Bank financing really contains two different groups. One is the conventional lenders. Fannie Mae, Freddie Mac. You’ve got all sorts of issues with getting financing especially if you’re an investor from the conventional lenders. There’s a limit of 10 mortgage properties that you can have. They go back and forth between limits of four and 10. I have no idea what it is now because I just don’t … I don’t deal with these lenders.

They have very strict financing guidelines. They require a ton of paperwork, very good credit, 20, 30% down, even notes from your doctor, they give you a personality test, you get the idea. It’s very hard to qualify these days especially for investors and if you’ve tried then you know what kind of nightmare it is. Then, you’ve got the portfolio lenders. These are your local community banks and credit unions. The difference between portfolio lenders and conventional lenders is that portfolio lenders are easier to deal with. They’re called portfolio lenders because the loans that they give out are mostly kept in their own portfolio.

They don’t sell these loans into the secondary market. These loans don’t have to meet the Fannie and Freddy strict guidelines. Because of that you’ve got less restrictions, again, because these loans are generally kept in house. If the bank lends their own funds to you, they can create whatever lending guidelines they choose. That allows the more flexibility. You still must qualify based on income credit, global cashflow and balance sheet. These are mostly considered commercial lenders which means, A, they’re a little bit smarter about evaluating you and understanding your business and so they can be flexible but they still need you to have solid income, solid credit.

They look at everything that you have, your assets, your other properties, your balance sheet and again, because these are mostly commercial lenders. That means that the loans carry short term calls. If you buy a property through a portfolio lender, they will typically call that loan or it will be in arm in 3, 5, or 10 years. I deal a lot with portfolio lenders. I actually like them but I have a very large portfolio at this point of loans that is going to reset or get called starting 2014, between 2014 and 2016, I think I have about three plus million dollars in loans that is going to reset which brings me a lot of interest rate risk.

Then of course, if you can’t qualify with either portfolio lenders and conventional lenders based on income, based on credit, you can go to a hard money lender. If you’re rehabbing and flipping, you can find a hard money lender in your area but they’re very expensive. They only lend short term, typically under 12 months and they charge a lot for the money. Hard money lenders make profits by turning their money over quickly. That’s why the to you for over 12 months because they mostly make their money on points. You pay them four to eight points up front. Points is just percent and they typically charge you a 12 to 16% interest rate.

If you’re borrowing $100,000 from a hard money lender, typically this will cost you four to $8,000 up front or sometimes they attack on the backend of the loan and another 12 to 16% annual interest rate. It’s a very expensive money and you need to have an assured exit strategy and really a very solid deal before taking on hard money. Assured exit strategy is required because if you can’t get out of that loan in 12 months, then they can either take the property from you or the interest rate, I’ve seen a lot of hard money lenders where the clause essentially stipulates that if you don’t get out of that loan in nine or 12 months or whatever it says, the interest rate jumps and becomes quite a bit higher than it already was which is 12 to 16%.

It’s very punitive if you can’t get out of that property in the time allotted by the hard money lender. You need to have a very solid deal because if you’re paying 15 to 20% annualized on your money, that’s really going to even to your profit margins, so your deal has to be incredibly strong for you to still make money after paying all this interest. Then, of course we’ve got private money, which is borrowing from individuals. There are very few regulations … more regulations really exist for how you solicit private money than for how you structure your private money deals. Documentation requirements are really up to the individual, to the lender, usually very little. Terms are as flexible as you can imagine, right?

Anything you could structure that your private lender agrees with you on, those are the terms. Typically, there are no loan to value limits, et cetera, et cetera, et cetera. Private money is traditionally the most flexible money that you can find. For example, if you want to buy, rehab and flip a house, you can go to either a local community bank or a credit union and here’s the other thing, right? For the purpose of this video, we’re assuming you’re buying and renovating and flipping your property while conventional lenders for investment properties is they will never find extra renovation. There is what’s called a 203K loan but that’s only for owner occupants.

If you want to get your acquisition and rehab financed, you can go to a local community bank or credit union, you can get a construction loan. I actually get these from time to time on bigger projects. You will again need to qualify based on income, credit, assets, it’ll cost you one to two points, five to 8% interest rate and typically, a six to 12 month term after which loan will get called or roll over into what’s called a mini-perm. I like construction loans on bigger project because it’s not expensive money but you still have to be able to qualify and the qualification process can be pretty intense even with portfolio lenders.

You can go to a hard money lender and get your face ripped off. If the deal is strong, you don’t need to have a good credit, income or assets. Hard money lenders look purely at the deal. Again, it’s very expensive money and you must be able to rehab and sell the house under the terms specified or loose the house to the lender or pay even higher interest or you can get a private money loan and again, the private money loan is simply a loan made by one individual to another, usually backed by real estate. The terms between you and your private lender are completely up to you. In a typical private money transaction, you, the borrower, receive a loan from … for X amount of money from private lender in exchange for a monthly interest payment based on X percent.

Usually, you give them a deed of trust or a mortgage on the property, depending on your state. Usually, there’s also a promissory note for the amount of the loan, promising to repay the loan after agreed term. In the most typical private money transaction, where an investor rehabs and flips a house, the lender funds either all or most of the purchase and renovation. The idea is, you do deal so cheap in relation to the after repair value that the lender is protected and I’ll demonstrate that for you in a bit and I’ll show you how to show that to your lender. Oftentimes the lender may not be comfortable with that much risk with funding the entire purchase price and renovation or a large chunk of it and require you to put what’s called skin into the game, right or your own money into the deal, a little or a lot.

Typically, this is true for risk averse lenders or individuals. They may not be happy with the interest rate you’re offering and what a higher return which means they have a higher risk appetite. The return your private lender gets typically should be commensurate with the risk that he takes on. This is a really sophisticated graph that I came up with me. Where’s my mouse? Okay, so you start over here and hopefully you can see my mouse which … and I’m going to go through these scenarios shortly and these numbers are purely for illustration point purposes. You start over here in the low risk, low return scenario. Low loan to value debt that your lender gives you.

As you go up the risks spectrum, your lender lends you a higher loan to value amount but the actual return goes up, then you get into the debt and equity scenario. Don’t worry about what this means, I’ll explain all this in a second but basically, the more risk that your lender takes on, meaning, usually the more money they’re lending you versus the value of the property, their potential return should go up as well. These are the scenarios I’m going to show you. First one this is what’s called low loan to value debt. A lender funds 50% of both acquisition and rehab or a lender funds acquisition, no rehab.

Higher loan to value debt, the lender funds everything with just a straight interest rate or the lender funds everything with, also rolling and closing and holding cost. Then, I’m going to show you a scenario called debt and equity which is where a lender funds everything, you give them an interest payment and a profit split and this is what’s called debt and equity whether it being a smaller profit split. Then, I’m going to show you a scenario what’s called 100% equity where the lender funds everything with only profit split and this is really called equity only and again, don’t worry about what this means, I’m going to go through each one of these in detail. Again, if anything doesn’t make sense, pause the video or rewind it and take notes.

This is the example deal that we’re going to look at. Purchase price, $100,000, your required repairs are $37,000. Closing and holding cost are about $3,000 so your total cost basis not including your financing cost, the financing is $140,000 and your after repair value or your projected resale value is $200,000. Before all you California people get open arms because you can’t find deals at 70 cents on a dollar, I’m sorry, you guys are in a really competitive market so this is just for illustration purposes. I’m buying deals like this, still on the regular basis. Thank God. This is how the numbers look.

You’re buying the property at 50% of the after repair value, right? The after repair value is what the property will appraise at and what it will be marketed and sold at once the renovations are complete. Once you’re down with your renovations and once you count for all of your soft costs, your total cost basis is 70% of that after repair value and so that leaves you 30% for profit margin. Let’s start with the lowest risk scenario, low loan to value debt. This is the version one of that scenario. The lender funds 50% of the cost of the project. That means they fund 50% of the acquisition and 50% of the renovation. Just because I’m showing you this scenario doesn’t mean that this is the scenario that you should go for, right?

Obviously for you as an investor, this is not optimal. You don’t want to put your own skin in the game. You want to use somebody else’s money. I’m going to show you how to structure this in case you ever encounter a lender that requires this type of scenario, right? If you’ve got no other choice, if the only money you can find is from somebody that says, well, let’s go … I’ll fund 50% of this project. The other reason why I’m going to show you how to structure this is if you ever go get a construction loan from a local bank, they typically use this scenario, only the number is 80% instead of 50%. Most of my construction loans are … where the lender funds 80% of acquisition and 80% of renovation and I’ve got to come up with the rest.

Again, lender funds 50% of the cost of the project. Investor, you is responsible for funding 50% of acquisition, 50% of rehab and then you cover all the closing, holding costs and you make interest payments during the rehab. Note, that this is what’s called a debt structure. I’ll show you another version of this later on. Let me show you how to structure this in Rehab Valuator. Okay, this is the welcome screen of Rehab Valuator. If you go here to rehab and flip or hold analysis. I’ve already got the purchase price, closing, holding cost centered as well as the cost of rehab. You simply click inside this blue box and you switch from all cash from your short term financing.

You select financing and you’re given two options here for how your lender finances your project, based either on cost, as a percentage of cost or a percentage of after repair value. In this case, we’re going to say, your lender will fund a certain percentage of cost and again, if it’s a bank, and you’re getting construction loan, this will be 80% but let’s say you’re dealing with an ultra conservative private lender, you punch in 50% here and let’s say you’re paying him an 8% interest rate and under adoption, interest payments during rehab, you select yes and there is no profit split. You can immediately see that if you sell this property for $200,000 with the 7% cost of sale, this will be your return.

Here, you’re able to see, well, this is what your lender actually lends you and this is how much cash you will have to come up with for the deal. You have to come up with 68,500 which is 50% of the acquisition and renovation and then you also have to come up with $3,000 in closing and holding cost and then you’ve got to make interest payments and in this case for six months. We’re saying, it’s going to take you three months to rehab and three months to sell. The project will take a total of six months and so you will end up coming out $74,240 out of pocket. If you go to view reports, you can click on private lender funding request and this is what you would show to your private lender.

You’re basically showing … okay, the after repair value is $200,000. This is the cost of the project, 100,000 to acquire it, 37 to renovate and I need you to fund half of that which is $68,500 and it’s only 34% of the after repair value. This is why we call this scenario a low loan to value debt scenario because this is only … your lender is only giving you 34% of the value of the property when the renovations are complete. Here, we’ve got the timeline and you can enter some notes here under project description. You can type in the description of the property and notes about your exit strategy in the loan terms.

Then, here you’re showing your lender, you will earn a total of $2,700 in interest and you will make an 8% cash on cash returns. If we click print reports, this is what it would look like, right? Just a one pager, when you’re sitting down with a perspective lender, you can just bring this to the meeting or you can email this to him as a PDF report and it just very quickly summarizes the deal, right? This is the cost base of the project, this is how much money I need and this is how much money you’ll earn. Let’s recap, if we go back here, back to my slides, the purchase price is $100,000. Cash required or repairs required is 37, right?

This is … The total cost basis is going to be 140. Projected resale price is 200,000. The lender puts up, $68,500. You as the investor put up 74,240. Your lender makes an 8% annualized cash on cash return and because you’re making a pretty healthy profit in this deal, this is your annualized return on your cash. Even though you’re putting up a lot of cash for this deal, you’re making a pretty damn good return on it. Now, let’s look at another alternative of this, right? This is called low LTV debt version two. This is where your lender funds the total acquisition but does not fund the cost of your rehab. You as the investor are responsible for funding rehab, closing cost, holding cost and interest payments during rehab.

This is going to be slightly higher loan to value but still it’s considered a low loan to value debt, right? Let’s go back to Rehab Valuator. If we go back here … here, it gets a little bit tricky, because you kind of have to backdoor your way into the calculations. You’re still saying that your lender will finance a certain percentage of your cost but to determine what percentage, we’re actually just going to create a formula here. Your lender is basically financing $100,000 out of $137,000, right? We’re going to say, equals 100, divided by 137 so your lender is financing 73% of the cost of your project and if you’re not with me on this … let me go back through it, right? Your lender will finance your purchase price which is $100,000.

The total cost of the project is 100 plus 37,000 right, in renovations. Here, you just create the formula. What percentage of the cost will my lender fund? Well, 100,000 out of 137 and immediately you can see here, boom, total loan amount, $100,000. Everything else stays the same. You’re paying them 8% interest rate. This is how much cash you now have to come up with out of pocket, $44,000. Your profit on this deal if everything goes according to plan will be $42,000 and if we look at your private lender request, it looks a little bit different, right? You’re requesting $100,000 in funds. Here, let’s look at this thing in the print format.

You’re requesting $100,000 in funds which is only 50% of your after repair value. Again, a low loan to value scenario, right? How do the number stack up here? Well, here, your lender puts up $100,000. You only have to come up with $44,000 in cash. Your lender still makes an 8% annualized return on their money and because you have to put up less cash, your cash on cash return on annualized basis goes up. If I were you, I would have the software open and just follow me along while we’re doing this. Let’s move on to … and again, so low risk equals low return, right? In my book an 8% return is kind of low and by the way, I’m not telling you to specifically offer your lenders 8% return, right?

This is just an illustration. It’s completely up to you whenever you negotiate. I’m just using an 8% number as an example, right? A low risk, because your investor is only lending you 50% less of the after repair value, only warrants a relatively low return, right? Here a lender still gets first lien on the property, right? Optional, you can give him a promissory note. It’s relatively low risk because if the deal doesn’t go your way, if you stop making payments, they can foreclose on you, right and they’ll actually end up making more money on this property, if they’re smart by foreclosing and selling the property to somebody else. This is purely a debt investment. Now, let’s look at two more structure and scenarios where the loan to value percentage goes up.

This is called higher loan to value debt version one. The lender funds 100% of the cost of the project. You as the investor are simply responsible for funding all closing costs, holding costs and making your interest payments during the renovations on a monthly basis. Again, do I recommend that you structure your deal where you have to make monthly interest payments, no and I’m going to show you another scenario where you don’t. Again, I’m showing you how to structure these deals in the most flexible manner to accommodate your lenders. Let me show you what that looks like. We go back to our financing scenario and we simply say, my lender will now finance 100% of the cost of the project.

There’s no points to pay. If this was portfolio lender, you would probably have one point, origination discount point to pay and you’d have some closing cost associated with the loan which would be … let’s call it 3%, right, so you would plug those in but because this is private money, you typically will not be paying points, except for a scenario which I’ll show you towards the end of this video and you’re still making payments during the rehab. This is how the numbers changed, you can see the total loan amount now goes to 137. Your lender is financing your acquisition and your rehab and your cash required, over the life of the project is simply your closing, your holding cost and interest payments to the lender over the six months that you’re doing this project.

Your projected profit is $40,520. Assuming you can sell it at 200 and your annualized return on investment is huge, right because you’re only putting $8,000 into the deal and this is how it looks from your lender’s perspective. Now, your lender is putting up $137,000 which is 69% of your after repair value. Still a very reasonable risk to your lender, still has a plenty of cushion if you can renovate properly. The property will be worth 200 and your lender is only putting 137 on the line. Here, you’re showing your private lender that you’re still offering … you know what, let’s go back because … let’s bump up the interest rate to 10%, right, because this is a higher loan to value, it’s slightly more to risk to your lender and so you should be compensating them and paying them a higher interest rate, 10 or 12%.

Again, I’m just using these numbers for illustration, it’s whatever you negotiate, right? Basically, in this one pager, you’re showing your private lender, okay, you’re going to put up $137,000. I’m offering you 10% interest rate. You’re going to make $6,800 over the course of six months and your cash on cash return is 10%. By the way, you can click on print reports and full presentation for private lender and then you can just create a five page presentation, right? It’s going to have your cover page, your one pager here, cash flows, you’re showing your private lender exactly when they will have to disperse money, right, $100,000 at acquisition and they’re also going to disperse $37,000 here with closing for repairs.

There is an option in the software that you could actually do this $37,000 in draws which is what any normal bank requires you to do and this is how much interest you’re paying them and this is what happens when you sell the deal, right? This is all about building your credibility. Comparable sales report that you can put together to show your lender that look similar properties are selling for around $200,000 and of course additional pictures. All right, so this is how the numbers stack up on structuring method number three, right? Same numbers up here. Now, your lender puts up 137, you put up slightly under $10,000 in cash to cover your closing, holding cost and interest payments.

Your lender makes a 10% annualized cash on cash return and you make close to 800% on your money on an annualized basis if you sell a deal at $200,000 because you’re putting up so little cash, right? You see the pattern here, we’re going from you putting up a lot of cash to putting up little cash and now, I’m going to show you a scenario where you put up no cash. This is called higher LTV debt version two. The lender funds 100% of the cost of the project along with paying for your closing and holding costs and this is key, your interest payments are deferred until the property is sold and loan is paid off. This way, you as the investor is responsible for putting up zero cash into the deal.

Let me show you how to structure that. Go back to this and you’ve got an option here that says, include closing and holding costs in the loan. Notice, right now, this says, you need put up $9,800 in cash. Now, let’s roll the closing …. holding cost into the loan and you can see that decreased by 3,000 and here you’ve got an option that says interest payments during rehab say, no, I will not be making payments during the project and all of a sudden those interest payments got rolled into your loan and your cash required over the life of the project just went to zero and this is how that looks. All right, let’s take a look at this.

Total funds needed from the lender is now $140,000, which is your purchase price plus rehab, plus closing and holding costs but look, it’s still only 70% of your after repair value so when you’re using this to meet with your private lender, this is what you want to show them. Look, I’ve got comps to prove that the after repair value is $200,000 so you’re only risking $70,000 on this deal or I’m sorry, 70% of the after repair value on this deal. Then, you’re deferring close to $7,000 in interest and so the total loan amount at the end of this deal that you’ll be responsible for paying off will be $146,000 which is 73% of your after repair value and you’re offering 10% interest rate and boom, there is a total interest income to your lender and they’re making it 10% cash on cash return, right?

If we go back here, in my fancy slide presentation, this is how those numbers look. Lender puts up $140,000, you put up zero, right, so ideally this is how you want to structure it. If you can get money at 10 or 12% interest and you find good deals, you want your lender to put up all of the money and you’re doing all of the work, right, so you put up zero cash. Your lender makes a 10 or a 12, whatever, 14% return on their money, the lower the better for you and you’re making an infinite cash on cash return because you didn’t have to come up with any cash. Pretty good, right? Now, here’s where things get a bit more interesting.

Let’s say a potential lender is not happy getting an eight or a 10 or a 12% return. Let’s say he wants something north of 12%. Most investors would just give in a say no problem. I really want this deal so I’ll pay you 14% or I’ll pay 16%. I really want to do this deal. From where I stand from my lender to get a 14% or higher return, they need to take some risk beyond just lending at 70% loan to value with the first lien. Here’s what I would do, I would actually decrease their interest rate but increase their potential return. How would they do that? Well, here’s a hybrid debt and equity structuring method, where a lender funds 100% of the cost of the project along with closing cost and holding costs.

Interest payments are deferred until the property is sold and loan is paid, just like the previous scenario. The investor is responsible for zero cash into the deal and let’s say you only pay your lender 4% interest rate but you also put in a 25% profit split, right, 25% of the profits when you sell them. Lenders still gets the first lien on the property but gets upside if the deal is successful, right? The lien on the property in the 4% interest rate, that’s debt, that’s what’s called debt but upside, now they have equity in the deal because they have upside and they will make more money if the deal is successful. This way, if the deal is not successful, you don’t owe your private lender as much money, right?

This way your private lender is sharing the risk and the upside with you. He’s only getting a 4% guaranteed return but if the deal is successful, let me show you how those numbers will look. Let’s go back to the software and now, let’s go here and let’s say … we’re going to drop the interest rate to 4% but here you’ve got a switch that says split back end profits with your lender, yes and we’ll going to give them 25% of the profits. Am I advocating that you split your profits with your lender? No, but if your lender demands a higher return than the interest rate you’re willing to pay, this is a way for you to get funded, make your private lender very happy, right, and be able to do the project.

Check this out, if you split your profits with your private lender and you give them 25%, and you sell the deal with 200,000, you’re still making 32 grand without having to put up a penny into the deal. Your lender … this is how your one page presentation would look. Your lender puts up $140,000 in cash and you’re also deferring $2,700 in interest. Remember you’re only paying 4% but look, now you’ve got this that appeared out of nowhere which is profit split to lender 25% and this is where it gets powerful. This box here shows your projected financial results for your lender. He’s going to make only 2,700 bucks in interest, not much but your profit split will be almost $11,000. The total income is going to be equivalent to almost a 20% cash on cash return to your lender, if the deal goes the way you say it will go. That’s pretty powerful, right?

Your lender is happy but now, your lender is effectively your joint venture partner, right? They’re happy, you’re happy because you got the deal funded, you didn’t have to put up any money and you’ve made a nice big profit, everybody wins, right? Let’s go here. Boom, again, the lender puts up $140,000, you put up zero, the lender makes almost 20% cash on cash return and your cash on cash return is infinite, right? Everybody wins, your lender is happy or let’s call them your partner now is happy. You’re happy, boom, let’s do the next deal. Are you better off only paying eight, nine, 10% interest rate, flat without profit splits?

Absolutely but this is the way you would structure deal is if you encounter somebody that requires a higher rate of return. Don’t just pay him an obnoxiously high interest rate, right? Tie their success to the success of your deal. This will be structuring method number six and we’re going to call it pure equity. Again, lender funds or he’s now basically your JV partner. Funds, 100% of the cost of the project along with closing cost, holding cost, interest payments are deferred until the property is sold. You are responsible for zero cash into the deal. This should just say pure equity. Here, let’s just edit it on the spot, how about that, in real time. Pure equity, good. All right.

Lender effectively becomes your JV partner. They put up the money, you run the deal and you split the profits 50/50. There are no interest payments to make. You simply pay your partner if your deal makes money. You can choose to give them a first lien in the property or not. Again, it’s really up to you and what you’re able to negotiate. If we go back to the software, this is what it would look like now. We zero out your interest rate and bump up your profit split to 50%. Now, you’re simply 50/50 partners. They put up the money, you do the work, split the profits down the middle. If the deal is not successful, you don’t owe them interest.

You’re both sharing the risk in the deal. You make $23,000 on the deal and if we look at your private lender, right, if you go here, same thing they’re responsible for funding $140,000 which is 70% of after repair value. Interest rate offered to lenders is zero but you’re splitting profits 50/50 and this is your projected financial results. The entire profit is going to come from this profit split when you sell a deal, 23 grand which is equivalent to almost 33% cash on cash return on the annualized basis for them. That’s pretty damn strong, right, but the reason why the deal warrants this kind of return for them is because they’re taking on additional risk, right? There may not be a first lien on the property for them, right?

They may not have the ability to foreclose on you. They’re just 50/50 partners with you and they’re not getting a guaranteed interest rate or any kind of payments from you. Where is my super snazzy chart here, here we go. As the potential risk to the lender goes up, so does their potential return, right? Sorry, if you’re getting dizzy watching this. I’m almost there. Look, structuring method number six, same as before, they put up 140 grand, you put up zero but their cash on cash return is now almost 33% because they’re your 50/50 joint venture partner. Here’s the thing, right? If you’re talking to somebody and they tell you that for them to fund your deal, based on the numbers that you gave them, they need to get at least a 20% return.

Well, use the software to play around with different profit splits. You can see right, given our scenario, 50% profit split is 33% return to the lender, right and as you go down in profit splits, boom, play around with the software, you can see what it takes to get them to 20% return. Don’t give your money away if you don’t have to, right? If your JV partner wants 20% return, offer them a 30% profit split and then show them the presentation. This is how you get to a 20% return and look, if at the end of the day, you end up selling the deal for 190 instead of 200, use the software to run the numbers again, right? If we go back here … let’s close this out, let’s say you only sell it for 185, right?

Well, before a 30% profit split, got you to a 20% return to your lender, but now they’re only 14% so bump this up to 40, right? Bump this up to 43%. When you sell the deal, look, you can still make it right by your JV partner if you want and give them a bigger profit split when the deal is sold and you know what your sales price is, right? You can use the software before the deal and after the deal. Hopefully, this makes sense. If not, watch what I’ve just showed you again. Let’s review the six different structuring methods and the results that we just went through before I show you bonus strategy. The first one was called low loan to value debt where a lender funds 50% of both acquisition and rehab and in our example, the lender got an 8% of return.

An alternative of this strategy was a slightly higher loan to value when a lender funds acquisition but no rehab and we also pay them similar return of 8%. Higher loan to value debt where a lender funds everything with a straight interest rate and we pay them a higher interest rate because the lender was funding us more money and the bigger percentage of the deal. We went a little bit higher in loan to value where a lender literally funds the entire cost of the project including closing and holding costs and this is really … I call it the highest loan to value debt because the lender couldn’t really give us anymore money because they already funded 100% of the project.

Then we got into a hybrid of debt and equity where we pay a lender a smaller interest rate but give them a profit split and give them upside on the deal and so lender end up earning close to 20% profit, 20% return actually. Then, finally, we went to basically a JV partnership where a lender is just a 50/50 partner with you. They put out the money, you do the deal and they get a bigger profit split where the lender end up earning or your partner really ended up learning 32.8% return on their money. Just a quick recap for you. I want to show you this bonus strategy and if you saw the first video that I recorded then I talked about this but I liked this strategy so much, and it’s so obviously … yet so few people utilize it, that I wanted to go over it again, because it’s really strong.

Here’s what it boils down to. This is a way for you to borrow money from people that don’t have any money to lend, right, think about that for a second. Let it sink in. You were going to borrow money from people that don’t have any cash, that don’t have any self-directed IRAs, don’t have any savings, how can you do this. I’ve personally borrowed well over $100,000 just using this method in the last few years. You find someone who has an untapped home equity line of credit. Usually, you’ll be against and excuse my typo, a primary residence. This is untapped borrowing power that this person has. Again, think about it for a second.

Somebody may not have much savings, may not have self-directed IRA. They’re not … they only fit the profile of your typical lender but they have an untapped home equity line of credit and usually these home equity lines of credit against the personal residence are very low interest rates, right? Right now, as I’m recording, these interest rates are basically at an all time low. People have home equity lines of credit at three, 4% interest. This is cheap money. What I typically do … and I’ve traditionally done this, utilized this strategy with people that are close to me. Friends, family, people that already know me.

Typically, this have been smaller amounts, 30, 40, $50,000 a piece. Here’s what happens, they write a check to you out of their credit line because that’s how these credit lines work. You basically can just write a check and tap that credit line. This is key and this is how you sell it to them. You pay them four to six point up front. Points are simply percent of the amount that they’re lending you. If somebody lends you … well, let’s start at the beginning. You pay them four to six points upfront and then you make their monthly interest payments every month until you repay the loan. Your lender is happy because they got to lend somebody else’s money.

Again, think about it. They’re lending not their own money and putting their own money at risk, they’re lending their bank’s money, right and they make a nice chunk of cash up front. For example, if they lend $50,000 to you out of their home equity line of credit, and you pay them six points, you’re writing them a check for $3,000. What if you don’t have this $3,000 sitting around? Well, they write you a check for 50, you deposit it and simply write them a check for $3,000 back. Think about that again, you just create a lender from a pretty unlikely source and your cost of money on an annualized basis is only around 10% using this example.

This is pretty powerful stuff. It really works well and typically when I’ve done this, because it’s been with people that know me and trust me and know that I’m good for this money, I’ve done this without giving them first liens in a particular deal. I’ve done this without promissory notes. I’ve done this with friends and family where they just write me a check and we have a verbal agreement. I’ve taken this $50,000 or $60,000 and use it for multiple deals, right? This strategy has been very easy money for me and these people know that I would bend over backwards and pay them back even if the deal failed but you can structure it just like any other private lending transaction with your lender where you give them a first lien on the property.

If you were to use this software to do this, then this is what it would look like. Let’s see, you would say, if they were financing a particular deal for you, let’s say it’s still at 100%, well, you would simply put points here, right? Origination discount points, six points. Paid upfront, no profit split and then if you’re presenting it to them, you want to leave this interest rate blank because you want to show your lender what they’re going to make so it would look like this. You would show your lender, look, you’re going to write me a check for $140,000. I’m offering you six points, upfront so you’re going to earn $82,000 and for the strategy that I’m showing you now, you don’t even need to use this software, it’s pretty math, right because this cash on cash return is not even relevant to your lender because this is not their cash that they’re lending.

If you’re analyzing this deal for yourself and you want to see what your cost of money is then you would put six points here and you would put, let’s say a 4% interest rate here and so now, you can run the numbers on the deal, knowing exactly what your cost of money is and figure out what your projected profit will be. It’s pretty easy. A couple of other things I want to show you before I let you go and these are pretty important, right? Again, with this software, you’ve got the ability here to put together a full presentation for your lenders. Again, if you want to talk about building credibility and make it as much easier for people to trust you and get your deals funded, use this.

Cover page, the one pager that we talked about, get the cash flow report that shows to your lender exactly how cash flows will be distributed. Comparable sales which prove to your potential lender that yes, you can’t sell the deal at the price that you say you will because similar homes are selling that similar prices right now and you’ve got additional pictures page. In addition to this, you can put together a detailed rehab budget, right? You can either do a quick lump some here or you can put together a very detailed budget and scope of work and you can show it to your private lender. Look, this is exactly where the rehab money is going to go.

We’ve also recently added an option here where you can either get your entire rehab budget funded at closing or you can do it in draws. You get maximum deal structuring flexibility and lastly, you can apply the same strategy if you’re buying, rehabbing and holding deals with the second exit strategy. A couple of things I’d like you to do after watching video, number one is if you’d like that … there’s a button below this video that will allow you to share it on Facebook as well as Twitter and I would really appreciate you sharing this with your friends and contacts on both of those social media networks and just sharing this content with as many people as possible.

Number two is leave me a comment below. Let me know what you thought, let me know if you’ve found this helpful. Let me know what questions you have and also if you’d like to see more tutorials and case studies about other subjects, leave me some suggestions below as well. If you don’t have Rehab Valuator Premium software yet, that unfortunately, you don’t have the ability to create marketing reports and presentations like the ones I just showed you, among some other things such as marketing your wholesale deals, creating detailed rehab budgets and more. Right now, you can click on the link below and get a permanent license to the software for just $97.

It’s a one time payment and I wanted to read you a couple of quick testimonials from our current clients that are using this software to achieve awesome results. Evan said, “Since you came out with the private lender marketing capabilities earlier this year, I’ve been using your program to pitch deals to a few lenders I lined up through my church. I’ve secured funding for five deals so far using your software to structure the deal and present it with approximately $270,000 in funding. Keep up the good work and I look forward to the improvements this summer.” This was right before we came out, with a new release, the latest release.

Bart Corrie who’s a good client of our from Nevada said, “I’ve been using Rehab Valuator Premium for over six months now and it is the best. Talk about building instant credibility. I presented two deals to new private lenders that I had never done business with before and gained $600,000 of funding for my deals. These two new deals netted me over $200,000 in profits in just three months. Your support is not like any other I have ever experienced. Daniil, you and your staff are quick to respond to my support request and resolve any question I may have and I am back to work. For all the investors out there, I highly recommend this product. Grab it now before the price goes up. It is worth a lot more than what Daniil is charging.”

Just as a disclaimer, that I’m required to give you, we’re not guaranteeing you’re going to get similar results to Bart or Evan or anybody else. These guys are … They hustle, they network. They are out there all day long, looking for money and networking and doing all the right things. Our software alone will not get you funding for your deals but it will help you tremendously look credible and professional when you’re dealing with your potential lenders. Jim Stallings said, “I’ve got your premium Rehab Valuator software and they love it, it is awesome. I’ve been in real estate investing for 13 years and have spent several thousand dollars on training, seminars, courses, coaching. I’ve never seen anything close to what you offer, especially for such a great price.”

Margaret said, I think this is the last testimonial, I’m going to read you guys. “I just used your Rehab Valuator for the first time and I wholesaled the house in two days. I picked up $5,000. I only have about eight hours in on this first deal and could not be happier. Rehab Valuator allowed me to appear professional to my list of buyers and actually have three more people express interest in the house because of it. It really takes the guess work out of the equation and allows you to present your project in a clear and concise way. I will now use it on every opportunity. Thanks again, Daniil.” Just to be clear, Margaret was using a different sector of our reports that are specifically geared to creating marketing materials targeted to your wholesale buyers as opposed to lenders.

They literally have by now, a couple of hundred more testimonials like these from our clients all over the country that are using the software to close deals, whether it’s selling their deals or getting their deals funded. Here’s what you get if you upgrade today. You get a permanent license to the premium software and permanent means, you have a license forever. There is nothing more to pay ever. No monthly charges, nothing. Again, a 30 day 100% money back guarantee, no questions asked. You get immediate access to the software, we’re going to send you as soon as you fill out the order form, a download link for the software. There is no waiting for it in the mail.

That’s actually also good because if you ever lose your computer or erase your hard drive, you can go right back to our website and download the software again. Again, unlimited customer support and if you’ve dealt with us in the past, or if you just listened to some of the testimonials, you know we take very good care of our clients. I’m absolutely religious about customer service. Finally, you get extremely detailed video tutorials that walk you through every step of using the software and that’s pretty easy. Obviously you get online case studies like the one I just recorded as well. If you order today, I’m going to throw in a couple of bonuses that I think are very relevant to the software and number one being, this video has been very popular with our clients.

It’s a 45 minute video on properly estimating rehab costs. It was recorded by Jerry Norton who has rehabbed and flipped hundreds of properties just in the last few years. This video basically shows you how to walk into any property and create a rehab budget for it in under 15 minutes and know what your repairs will cost you. It’s an awesome video. I’ve been rehabbing for five years now and I still learned a lot by watching it. I put together a library of E-books that specifically deal with sourcing the best, cheapest deals in today’s market, right? Whether you’re wholesaling, you’re buying deals for yourself, you need to be on top of the latest strategies that work on how to find the best deals, otherwise, you have no business.

You’ve got nothing to wholesale, you’ve got nothing to rehab, unless you’re finding the best cheapest deals out there. These E-books deal with just that subject and each one typically sells between 50 and $100 each, I’m giving them for you for free. Then, finally, you get a special report called How to Hire Contractors Without Getting Ripped Off. It’s a great report and it’s a $50 value. All in all, similar programs to Rehab Valuator are selling for at least $200 and most of them carry pretty hefty monthly charges with them. That’s $197 value and along with all the bonuses, you’re getting a value of over $500 easily and you’re paying $97 one time today and I’ve been threatening to raise the price for a while now.

What’s going to happen is, by the beginning of next year, I’m probably going to transfer to an online version that’s going to have a monthly fee with it and I’m going to get away from the $97 one time payment so take advantage of this now. That’s really my suggestion. All right. That’s the end of my presentation. I hope you’ve gotten some really good value out of it. I hope you’ve learned it, learned a good amount of information. Take that information and put it to use. That’s the only way it’s going to benefit you, is go out, find some potential lenders, use the software to structure your deals, to create presentations for when you negotiate with them. Again, if you don’t have the software yet, it’s a freaking no brainer, $97, you’ll make that back 20 times on the first deal you do.

That’s it. Thank you very much for watching and leave me a comment on the bottom, click the Facebook like button and share this with your fiends.

GET REHAB VALUATOR PREMIUM (WITH ALL THE PRIVATE LENDER MARKETING REPORTS and $400+ in Bonuses!)

Comments (33 comments so far)


  1. Tim Rogers

    Daniil, I have only use the software for wholesaing my deals. Now, I am moving into fix/flip. I will definitely be using the private money marketing of the software. Great job Daniil. Keep up the good work.


  2. diane

    is there a phone number that i can order from ,if so can i have it , or i will just have to listen to audio again. thanks


  3. Carolyn Nichols

    THANK YOU, DANIIL FOR THIS PRESENTATION. I REALLY LEARNED A LOT FROM IT. YOU ARE REALLY RIGHT ABOUT THE CALIFORNIA MARKET. SO MANY PROPERTIES ON THE MARKET.

    YOUR TRAVELS ARE SOMETHING ALSO OF INTEREST. DO YOU DO BUSINESS ALONG THE WAY? HAVE ALSO WONDERED ABOUT YOUR WALL IN RENO. I USED TO LIVE THERE. BUSINESS MUST BE GOOD.

    GO, DANIIL.


    • Daniil

      Hi Carolyn. I typically only invest locally so when I travel it’s usually just for pleasure πŸ™‚ The wall in Reno is up and running along with the rest of the facility last time I checked, though there were some major management shakeups and typical drama. Hope you’re doing well!

  4. yes I like this program. Just slow down and make sure you show your work you did not change interest when you said you would make payments at the end. The numbers do work.

  5. Daniil will you JV I live in NV one of the hardest hit areas and am looking in other areas at holders 20k to 30k please let me know thanks keep up your good work it is needed Thanks David


    • Daniil

      Hi David – I don’t JV with anyone right now. Have too much going on here locally that keeps me busy! If that ever changes will definitely let you know. Thanks!

  6. Daniil: you are fantastic with this software ,and highly credited to the realestate industry, i have a good idea for you,don’t go online just yet with this software,maybe you can talk with jerry norton and come up with a pricing software for all parts :plumbing electrical roofing nails carpeting everything you would find in home depot or lowes ,yes i know we refer to 40 dollars a square/ft. on the software but to squees down itemized numbers on the sq/ft to say 35per quare/ft. i haven’t searched any companys but there are companys out there with simular materials,i refer to you for your dynamic and professional skills and your teaching and presentation along with the clarity ,and as for your immigrant status ,you are a darn good american russian citizen, this is the goodwill of a person when they show the people a good thing at a small price and to enhance society a better way to go.


    • Daniil

      Jerome – really appreciate your compliments! We probably won’t go online till next year and even then I’ll have a free version people can use. Always good to hear from you bud!

  7. Fantastic,but i urgently need money badly.?


  8. George Foster

    Daniil, very good presentation for beginners and a good brush up for veterans. Your software is simple and allows a lot of flexibility especially since you have added the new features. Look forward to more of your videos!


  9. Julio

    Hi Daniil,

    Great illustrations. Can you recommend where I can find the deal at 50% discount? I will really appreciate for kind assistance.

    Julio Pilco.

  10. HI Daniil,
    This looks like what we need to get our lenders excited. Just showing them a picture or a video no longer works as well as it did. In this economy people want to see hard numbers that they can make a decision on. It may help in training investors to break down the rehab costs that investors might forget about such as insurance,taxes,utilities, lawn care or snow removal. I would like to see case studies on how you get accurate rehab numbers. Your homes look great do you have an interior decorator on staff? It is sometimes easier to get the hard things done but making it all flow and knowing what and how to upgrade can literally make the sale. We have one house that we had rehabbed for an investor but it does not pop and impress so it just sits on the market. Keep up the good work.
    Paul

  11. Looking for private money lenders, please.

  12. Hi Daniil,

    I am existing client of yours Rehab pro and Rental Valuator pro , I did not get any of the bonus that you are offering.
    This software is the best, I use both of them for any deal that come-by, Guys, buy it and use it, you will not be Disappointed.

    Nick Weeraman


  13. Bill Wiley

    Danill,
    As you know I have been using RehabValuator as well as the RentalValuator software programs for a couple years now and cannot tell you how powerful they are in communicating transaction details to all of my Private Lenders / JV partners during that time. I would recommend either of these programs to Newbies and seasoned Investors alike. My question to you however is, What similarities or differences are there between Rehab Valuator and your Newest project, JV Valuator? Is there a need or benefit for purchasing both or would this be considered an upgrade?


    • Daniil

      Hi Bill! Thanks for your compliments and glad you’ve found our software so useful!

      The new one – JV Valuator – is sort of a hybrid between my Rehab Valuator and Rental Valuator.

      Rehab Valuator is specifically for short-term fix/flip or fix/refi/hold deals – deals with an exit strategy under 2 years.

      Rental Valuator is specifically for buy/hold deals, long-term deals 2-40 years. Especially commercial deals and apartments.

      JV Valuator was built specifically for deals where you buy the property with a JV partner, rehab it, and then hold it 2-10 years. It very specifically breaks down the financials and presentations for JV partners that go in on the deal with you. So it’s definitely a bit different from the other software programs.

      I try to create “niche” software programs for particular strategies, instead of making one bulky “one size fits all” software platform that would just confuse people.

      Hope that answers your questions/clarifies it. But if not, shoot me an email!

      Daniil

  14. Hey Daniil, Your software works well with freedom soft, another software program that I’m using to find cash buyers and comp’s in any US market. Thanks for your Eugenius program.


  15. ghulam farouq

    Hello Mr Daniil !
    Great presentation,and how do I sructure a deal with lender if I,ll not be able to flip ,but I,ll be able to buy and hold for 3 to 5 years ?. Regards


    • Jacob

      Hi Ghulam,

      You have two options. You can either structure the money as a regular loan with interest and your 3-5 year term, do an interest rate with a profit split at the end when you sell, OR bring them in as a joint venture partner (equity partner) in which they put up the money and you split the monthly profit from rent each month as well as profit from the sale at the end. Those are the choices. It’s all about what you can get a lender to agree to and what works for you. If you have further questions email us at support@rehabvaluator.com

  16. Thanks as always for a Great Presentation Daniil!!!! I’m currently looking @ Homepath Property which is a Quadplex and looking to occupy one of the units How would I structure a private money loan presentation with no skin or maybe 3% of the purchase price


    • Daniil

      Hi Willie – I believe that is covered in the video above!


  17. Marilyn Eitreim

    Daniil,

    This was great. My partner and I are working on a deal now and the examples of money structuring will help us tremendously.

    Thank you,


    • Daniil

      Glad to hear it, Marilyn!


  18. Mark

    Watched the video, which clearly offered the Premium software for a 1-time fee of $97. Clicked the link, was taken to order form for $197 for 1 year.

    The video was very informative, but the offer at the end really should match the price at checkout. Otherwise, you open yourself up to accusations of bait-and-switch, or worse.

    – Thanks,
    Mark

    PS – On a more positive note, thanks for just focusing on the power of the software, and not throwing in a lot of vacation photos & other Jedi mind tricks that other purveyors of REI systems include in their promo videos.


    • JacobC

      Hi Mark,

      I apologize for that. Daniil does explain in the video that he is going to move to a subscription based model which is exactly what the $197/year is. It’s just a case of the video being a little bit older and to re-record it is very time intensive (he hasn’t had time to do that yet). I’ve made a recommendation that we at least put an FYI on the page explaining that it’s older pricing. Thanks for the heads up!


  19. Sam

    DK,

    You are rocking the House Man, with this software. Just keep doing what you do.

    Thanks >>> To the MAX !


    • Daniil

      Sounds good, Sam! That’s the plan! πŸ™‚


  20. ron russell

    do you have a video and / or software on finding cash buyers?

  21. The process is beneficial but need more coaching


  22. chris osaka

    Thanks for the tutorial but it would be purchased in a month later but I need more teaching from you I promise.

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