BiggerPockets

I assume you're asking what interest rate would you pay on a private loan. If you mean something else, please explain.

Its really a matter of what you can negotiate. CD's are paying 3%. Hard money is paying 12-18%. So, somewhere between that. If you have a potential investor, ask them what they're expecting. If you're holding long term, I doubt you can pay much more than 7-9% and still get a decent return. Personally, I'd not lend you money at that rate, but I suspect you can find some people who will.

CDs are often structured as monthly or quarterly interest payments, then the CD matures after some years. If you offer a similar structure, you may get more interest, and it will be easy for the prospective investor to compare to CDs. For example, offer 8% interest, interest only paid quarterly or monthly with a five year balloon. That's equivalent to a 8%, five year CD with quarterly payments.

Some of the PL I have found are very happy with a fixed 12% per diem. If you are focused on establishing yourself in you area, as I wish to do, then make sure to offer everyone the same return..it will only add to your credibility as word will get around eventually. I know I could easily get PL's to agree to a 9-10% return but why be greedy. 12% is an eye opener and imo a comfortable number.. I think that when you offer more than that return, your avg person will become a little skeptical and might think that it's a little shady.

Definitely focus on your avg joe who has money in a cd (You can get a list of people who have cd's, IRA's from a list broker). If they have an IRA, even better because you can refer them to a third party administrator that can shelter that 12% return under a truly self directed IRA. That way their investment (which is actually a loan to you secured by the property being purchased) can grow tax deferred or tax free. The third party administrator works directly with your private lender and sets up an account under their name ( you never touch their money). Then when you are ready to close, your PL can have those funds wired directly to your closing agent (title company or real estate lawyer). Btw, a good third party administrator is Equity Trust. There are others of course. Give these guys a call and ask questions..they are very helpful and use to working with RE investors. They will even send you free info ( brochures..etc) that you can give to your potential PL along with any other info you provide them with (PL packet)

I would not bother with using more experienced investors as private lenders unless you want to pay them a MUCH higher return.

Also, make sure you have at least 3 PL before you get started. You don't want egg on your face and relationships compromised. I lost two deals recently because my PL, who committed to over 500K a few months back backed out at the last minute because he needed his cash reserves for his own business needs which came up.

Hope this helps.

yes...correct...meant for as long as I have their money working.

The anualized return of 12% is broken down at a per diem rate.

ex:

100,000 (borrowed) times 12% = 12,000 anualized return

12,000 divided by 365 = $32.88...which is their daily dollar amount return.

That's what I meant.