A recent private money deal – how a savvy borrower used a private money loan to make a $500,000 profit on a fix-and-flip

Karen had found a gem – a three-house compound in Mill Valley with great potential. As a designer, she had the eye for what could be done. But her employment income of $80,000 a year and $40,000 in the bank weren’t enough in the conventional lending industry to get started. We were able to give her a $3.25 million dollar loan to acquire and renovate the property.
The key to the deal was the $800,000 in equity Karen had in a rental duplex she owns in Corte Madera. She couldn’t tap into it on her income using conventional financing. Private money was her only option.

The property Karen wanted to buy was a family compound consisting of 1 large home and 2 smaller homes, each on it’s own parcel listed for $3 million in total. She came to us with a clear plan, and a reasonable budget, for the project. An interior designer by training, she knew her way around a construction site, and she had great taste. Our analysis was that the properties were under-priced, and we felt that Karen had the background and chops to remodel and flip each of the houses.

The seller wanted a 15 day close of escrow, with no contingencies, and Karen had only two days to make the offer. After inspecting the properties and carefully vetting her plan, we made loans totalling $3.25 million, enough for the entire purchase price, including closing costs and rehab money, and the deal closed in the 15 day time-frame. To structure the deal, we combined first mortgages on the three homes with a second mortgage cross-collateralized with her Corte Madera duplex.

The two smaller homes in the compound were sold within 5 months, each netting over $950,000 after all expenses. Work on the larger home increased it’s value to well over $2 million. Karen is now putting her Corte Madera duplex on the market and will move into the larger home in Mill Valley. She started with $800k in equity in the duplex and $40,000 in the bank, and she will end up with the same amount in savings and at least $1.3 million in equity in the Mill Valley home after taxes and expenses.

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