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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 real estate. In this case study we look at a private lending deal from February 2020 that was paid off in July, 2022, and earned the lender 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 a real life private money lending deal from funding in February 2020, through payoff in July 2022.

This private money lending loan was funded by a private investor through the Garnaco Private Lending Program in February 2020, originally with a 60 month term, and was paid off 31 months early in July 2022.

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 home was being purchased off-market at a significant discount for just $24,000, and the borrower had commissioned a Brokers Price Opinion indicating a future after repair value (ARV) of around $62,000.

The borrower had their contracting team inspect the property and produce a Scope of Work which indicated that a total budget of just $4,000 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: $6,000
  • Renovation Budget: $4,000
  • Total Project Budget: $34,000

The borrower’s plan was to acquire the property, carry out the renovation, and then lease the home to a long-term tenant with a view to eventually helping the tenant purchase the property.

The secondary exit strategy was to refinance the property and hold as along-term rental within the borrowers growing rental portfolio.

The borrower was seeking funding from a private lender for up to 100% of the purchase and renovation costs.

Property Images Pre-Renovation

The property had been neglected by the previous owners and in need of cosmetic updating, but was mechanically sound.

Private Money Lending Case Study 1205 Lawrence Ave Before Renovation

Due Diligence

Garnaco has already completed over 100 similar renovation projects in their markets, including over 25 in the past 12 months.

The owners and management team comprise a group of real estate professionals with decades of experience as both investors and realtors.

The borrower provided the following documentation:

  • 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, the lender agreed to fund the loan.

Deal Terms

The lender was a private individual from Utah that was investing funds from his self-directed IRA account through the Garnaco Private Lending Program.

This particular lender ideally wanted to lock his money away for a few years, so was for mid-term lending investments that would pay a regular monthly interest income without too much in the way oversight and management.

The lender agreed the following terms with the borrower.

  • Loan Amount: $35,000
  • Term: 60 Months
  • Interest Rate: 9.00%
  • Points: $800
  • Lending Ratio: 56% to ARV

In this case, the lender agreed to fund 100% of the project costs due to the relatively low overall investment amount, and the low lending ratio.

The interest rate was set at 9.00% p.a., with an additional $800 in points to the lender at closing.

Closing, Servicing and Insurance

After title work was complete, the purchase of the property was closed through escrow with Heritage Security and Service Co. on 28th February, 2020.

The borrower paid for lenders title insurance through First American, 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 a monthly payment date of 25th of each calendar month.

Renovation and Payoff

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.

Private Lending Case Study 1205 Lawrence Avenue

The lender received monthly payments at a rate of 9.00% p.a. every month from March 2020 through June 2021, at which point the borrower secured a refinance deal for $61,000, paying off the lender, and taking out $26,000 less costs in tax-free cash.

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.

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