Doing my first flip and lender wants me to name the terms.
I'm getting ready to do my first flip and I have a private lender who I asked what their interest would be in financing the rehab for this project. I used this same lender to buy a buy and hold single family. This lender who is new to the scene as well as I am said they'd be interested but what would the terms be.
My question to all of you is, what are reasonable terms without over doing it for us or skimping on their generosity as well.
Thanks
If you were in there shoes what would you want? For something that will be 3-6 months I would say around 10% APR with no points should be solid for short term private lending without giving up too much. You want to make sure they're happy with their returns and keep lending. If you keep doing flips and they keep lending where they're lending year round 8% no points would be solid.
Edit to add: I just gave a private lender 12% with no points even though they may have done it for 8%. I only needed $50k for probably 3 months. They'll get $500 per month. The difference from 8% to 12% doesn't make much difference on this to me, but makes them happy.
I've heard anything from 6-15%, but usually 12-15% is pretty rare. 7-9% is pretty common. I hear of lots of interest only for 6-12 months, some people make no payments at all for 12 months. It's pretty flexible. I'd start by finding out what their money would be doing if not investing in you. If it would be in a bank making <1% interest, pretty much anything you offer would be a great deal for them.
I have a colleague who gets what seems to be a sweet deal from his private lender: 0% for six months (18% after six months) with no payments and 10 points on payback. If he does that twice in one year, his lender gets 20% annual return.
My sister lends me short term money at 10% no points, no fees, thats it.
One friend who lends from her sdira charges 2pts and 10%. This is usually 6 month terms, but I can usually buy then wholesale or buy then rehab and sell well within the 6 months.
Another friend does 2pts and 8%.
They all know that they can get half of a percent in the bank, they know they could lend it out to other investors at 12% and 2pts. It is the trust that they have with me and I really let them name the terms.
I would sit down and have a serious conversation with your friends. Ask them what they are thinking. Let them know that you could borrow at 12-14%, but you were hoping to work with them at a little bit of a discount since their money is doing nothing right now and it would be a win-win for both of you. ASK them if they think 8% is reasonable. Ask them if they would trust you with their money at 8%. That is a good starting point. If they say that they could never take that much money from you, then say how about 6%. If they were thinking a little more, tell them 10%. Go from there. Have fun.
thanks everyone for your responses. Very helpful and a great starting poor a balanced discusion with this lender.
What kind of terms did they do for your other loan with them? Were you both happy with the results?
The terms for our other loan was a 5 year interest only with a balloon and it allowed us the money to purchase and update the dwelling before renting it out.