Upfront costs for private money

11 Replies

I have an offer on the table for a private money loan of $310k to finance the purchase of two properties. The lender wants half of the fees up front ($6k) as a wire transfer. Is that normal? I've never done private money before. It's not that I object to paying the $6k, it's that if i do a wire transfer, there is no real guarantee that I get funded. after that, everything goes through an escrow company so I feel fine with that. Is this ok or should I worry?

This doesn't sound like it's a "private money" deal since you mentioned a lender and fees.

Private money is cash you get through friends, family, etc.

Are you referring to a hard money loan?

I'm using a person I met through an REIT group. As I understand it, a hard money loan is a short-term loan of 18 months or less with a balloon payment due at the end. This would be a private money loan where an individual is lending me money for 30 years, much like a bank. Am I misunderstanding my vocabulary and that is actually hard money loan? in any case, it is a 30 year fixed rate loan from a private individual. They are charging four points for the loan and would like me to wire them half upfront. 

@Tanya Knickerbocker   Always a red flag if they want upfront fees, especially wired.  Also a flag for an individual to lend money for 30 years.

It's basically a private individual giving you a "bank loan." But with the fees I'm wondering if it's not a better idea to just get a bank loan, unless you can't.  

Hard money doesn’t mean sketchy or suspicious.
Hard money is just a term; HARD is just the Asset “the property” is in “physical object”. As a newbie investor I formed my business model around utilizing Hard/Asset based lending. Don’t get me wrong I haven’t used hard money yet. However I know what it is how it works and who’s helping investors in my neck of the woods.
Find out who your recognized local lenders are; BiggerPockets has a rundown and a host of podcasts on the subject. Call them reach out Email ask questions.
Their generally more than willing to speak with you about what your doing and how they may be able to help. They oftentimes are very familiar with different aspects of Realestate investing and offer valuable knowledge and information. I have to run with the pack on this one that lender sounds sketchy. Your in the right place.. Take Care.
Value Adder Properties llc.

Why don't you ask if they can roll their fee into the loan?

If you give them $6k and then they give you $310k, then it's net to you $304k, right?  Why not just write a note for a $310k loan and have them send you $304k instead (and roll in the $6k into the loan balance)?  That way it's still the same net, but you don't have to send them any money upfront.  True private money shouldn't require anything upfront.

A 30-yr private money loan does sound fishy though (but there are real ones out there).  What are the terms on the loan?

4 points, 7%, 30 years. It's a good deal if it's for real. My broker says he has worked with this lender before but this is my first private money deal so I'm not sure what to expect.

Originally posted by @Tanya Knickerbocker :

4 points, 7%, 30 years. It's a good deal if it's for real. My broker says he has worked with this lender before but this is my first private money deal so I'm not sure what to expect.

It's somewhat expensive for a long-term loan.  However, if it's 100% financing and doesn't require any qualification, then sounds like a pretty good deal.  But if you have good credit and the property cashflows well and you're willing to put in some down payment, you can get a better loan.

@Tanya Knickerbocker   Please let us know what happens with this.  If it is a genuine lender, request the fees to taken out of the loan at closing. 

Here's an update. Capital Direct in Houston TX had offered to finance $370k but somehow that meant I had to put 20% down on $370k worth of property! There was a lot of miscommunication and needles to say the loan did not go through. Now I'm waiting to see how much of my money I'll get back. It should be most of it but that will tell me really how it is - scam or no scam. Capital Direct said it will take two weeks to get my money back which seems fishy but as long as most of it comes back, I'll be reasonably happy. I'll update again in a couple weeks...

In the mean time, I'm still looking for financing. At this point, I would need 95% LTV until I get my money back. Ugh. That's s lot harder to find!

Hi Tanya,

Perhaps I can assist. How much rehab does the property need? If you own some rentals I think I know a lender that would cover 95%

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here