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Private Money Lending Case Study July 2022

Private money lending can be a great way to earn passive income from real estate without the hassles of buying, owning and selling physical property. Today, you get to see exactly how it works as you walk step-by-step through a real-life private lending deal that earned a private investor from Utah a net 22 percent return on her money

David Garner
David Garner
Published On: August 1st, 2022

Private Money Lending Case Study

Welcome to another case study where we’ll lay out every step of a real-life private money lending deal funded by an investor from Lindon, Utah through the Garnaco Private Lending Program.

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  • The Proposed Investment
    • Property Images (pre-renovation)
    • Purchase and Rehab Costs
  • Pre-Funding Offer
  • Due Diligence & Underwriting
  • Deal Terms & Funding Agreement
  • Closing, Servicing and Insurance
  • Renovation and Leasing
  • Refinancing and Payoff
  • Investment Summary and Timeline

The Proposed Investment

This property at 1205 Lawrence Avenue in Ellwood City, PA, was being acquired by Garnaco Property Holdings (PA), LLC for the company’s Pathway to Homeownership Program.

The borrower was able to agree a deal with the seller – a retiring local landlord – to acquire the house at a significant discount to market value.

The plan was to hold the property as a long-term rental for an initial period of up to 3 years, with a view to selling the home to the tenant on a lease-to-own contract.

The exit strategy(s) for both lender and borrower was based on either refinancing or selling the home.

Property Images Pre-Renovation

The property was in sound mechanical shape with ‘good bones’, but had been neglected by the previous owner who had let deferred maintenance stack up.

It was in need of cosmetic updating in order to lease quickly to a good tenant for market rate rent.

Private Money Lending Case Study 1205 Lawrence Ave Before Renovation

Purchase and Rehab Costs

The home was being purchased off-market at a significant discount for a purchase price of just $24,000.

The borrower had commissioned a Brokers Price Opinion from a local real estate broker indicating a future after repair value (ARV) of around $62,000.

The borrower’s local contractor inspected the property and produced a Scope of Work which indicated that a total budget of around $10,000 would be required in order to bring the condition of the property to a standard suitable for the local rental market.

Here are the key financial headlines for the project.

  • Purchase Price: $24,000
  • Closing Costs: ~$6,0000
  • Renovation Budget: ~$10,000
  • Total Project Budget: $40,000

The borrower’s management team already owned a growing portfolio of 50+ rental properties, and had successfully completed more than 10 similar rehab-to-refinance projects in this local market within the past 12 months.

All of the borrower’s previous projects had been funded using private money loans, and they were now seeking funding for up to 80% to 90% of the purchase and renovation costs for this project.

Pre-Funding Offer

The borrower listed a funding request for $35,000 to prospective private lenders through the Garnaco Private Lending Program investor portal, along with supporting documentation including:

  • Purchase and Sale Contract
  • Brokers Price Opinion
  • Detailed Project Plan
  • Scope of Work
  • Proof of Previous Projects

The borrower was requesting funding for 60- months on an interest-only basis, with an interest rate of 8.00% and points negotiable at closing.

The longer term allowed for the borrower to hold the property with the current lender in place for an extended period of time while they worked to help their tenant purchase the home, or secure a refinance loan.

The loan proposal was provisionally accepted by a lender from Lindon, Utah, who regularly used funds in her self-directed IRA retirement account to lend money via the platform.

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Due Diligence and Underwriting

Once the loan proposal was accepted, the borrower provided further documentation, and the lender was able to conduct their due diligence and underwriting process.

The borrower provided the following documentation:

  • Company Registration
  • Certificate of Organization
  • Operating Agreement
  • Corporate Resolution(s)
  • Register of Members
  • IRS EIN Assignment Letter
  • Owned asset list
  • Proof of funds
  • Owner Identification document(s)
  • Entity and Owner contact details
  • Owner credit report
  • Owner background check
  • Draft promissory note
  • Draft mortgage deed

After vetting the information provided by the borrower, the lender agreed to fund the loan and a Funding Agreement (loan agreement) was drawn up.

Deal Terms and Funding Agreement

The lender was a private individual from Utah that was investing funds from her self-directed IRA account.

The following terms were agreed with both parties:

  • Loan Amount: $35,000
  • Term: 60 Months
  • Interest Rate: 9.00%
  • Points: $800
  • Monthly Payment: $262.50
  • Balloon Payment: $35,000

In this case, the lender agreed to fund 87.5% of the total project costs, equating to a loan-to-value of 56% against the after repair value (ARV) of the property.

The lender and borrower signed the Funding Agreement whereby the borrower committed to:

  • Provide proof of lender title insurance at closing
  • Provide proof of hazard insurance at closing
  • Conduct the stated repairs to the property in a timely manner
  • Pay the lender her interest on 25th of each calendar month

The lender committed to:

  • Fund escrow 24 hours before closing

The Funding Agreement was signed by both parties remotely via DocuSign on 6th February 2020, and a a proposed closing date of 28th February 2020 was set subject to stated terms in the Funding Agreement and clear title.

Closing, Servicing and Insurance

Title work and closing was conducted though Keymax Settlement Services, a licenced closing company in the state of Pennsylvania.

Title work was completed before the stated closing date, including an ACT 121 physical inspection of the property by the city which is required in PA, as well as dye certificates and municipal sewage certs.

No title issues were found, and Keymax issued a HUD-1 settlement statement to both parties for approval on 20th February.

The lender funded escrow ahead of the closing date, and the purchase of the property was closed as scheduled on 28th February.

As per the Funding Agreement, the borrower paid for lenders title insurance through First American Title Insurance, and the lender was also named as 1st Loss Payee on the Borrowers hazard insurance.

Make sure you use a proper title company or attorney to close your loan, and also make sure to get lenders title insurance

At closing, Keymax recorded the mortgage at the local courthouse and distributed funds as per the settlement statement.

$800 in points was distributed to the lender by check, and in this case, due to the relatively small size of the loan and small rehab budget, rehab funds were wired directly to the borrower out of closing.

Once the deal was closed, the borrower set up the lender on autopay by ACH bank transfer to receive her monthly payment starting 25th March.

As the borrower was paying monthly interest in advance, this first payment included an additional pro-rated amount of $224.38 to cover the 26-day period between closing and the first interest payment.

Renovation and Leasing

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

Most of the work carried out was cosmetic in nature, including:

  • Complete trash out & Dumpster hire
  • Painting walls ceiling and trim throughout
  • Replacing windows
  • Treating for mould
  • New flooring throughout
  • Landscaping
  • Some trim replacement
  • Some minor plumbing, electrical and furnace repairs
  • Installing smoke detectors
  • Some minor roof repairs
  • Deep Clean

Once the rehab was complete the property was inspected by the city for code adherence before registration and approval as a rental property.

Post-Renovation Pictures

Private Lending Case Study 1205 Lawrence Avenue

The property was leased to a long-term tenant for $800/month, and the total time taken from closing through leasing was around 90 days.

Refinance and Payoff

Throughout the term of the loan the lender received monthly interest payments as scheduled on 25th of every month.

In June 2021, the borrower secured a refinance mortgage loan for $61,000 with a commercial lender. The borrower’s new loan closed on 8th July 2022, and the original lender received a wire transfer for the full amount of $35,000 on 9th July.

Investment Summary and Timeline

So there you have it, a successfully executed private money lending deal.

Our lender from Utah earned a great return on investment throughout the COVID-19 pandemic, with no worries about real estate related issues such as tenants, repairs, maintenance, insurance, property taxes, security, or property management.

The borrower was able to use private funds to add another profitable rental property to their portfolio, without turning to expensive hard money lenders, or having to deal with restrictive and slow big-bank lenders.

In summary, here’s how it all worked out…


  • 2/3/2020: Property under contract
  • 2/10/2020: Funding request listed
  • 2/12/2020: Funding request accepted
  • 2/14/202: Due diligence and underwriting completed
  • 2/14/2020: Funding Agreement signed
  • 2/20/2020: Settlement statement issued
  • 2/27/2020: Escrow funded by lender
  • 2/28/2020: Purchase closed
  • 3/25/2020: First interest payment received
  • 7/8/2022: Principal repaid

Investment Summary

  • Total Investment: $35,000
  • Total Term: 29 Months
  • Interest Received: $8,374.38
  • Total Return: 23.9%
  • Annualized ROI: 9.89%

If you’d like to know more about the Garnaco Private Lending Program, click here, or you can fill out the form below to receive our weekly email with details of new, fully-vetted private lending deals

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