Investor · South East Texas · Member since 2019 · 65 posts · 11 votes
So I am now getting request from my friends and family that they want to put their money with me. From someone who has used other peoples money before, what percent interest did you give in return? I don't know what I should ask for. Thanks in advance!
It depends on what type of investing your doing. On my BRRRR projects I pay 10%-12% annually. It's usually short term about 6 months. If your financing is long term then you would likely give a preferred return and then a percentage of profits after all expenses are paid. Preferred return might be 6%-8% and then an equity share when you sell. This is pretty popular in syndications. Long term is approximately 5 years.
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
6y
Depends on the project at hand and how much I really need it for the current deal. I would offer 10%+ for a longer term buy & hold note, and they can take a second position on the asset until I can refinance it in a few years. I'd prefer not to do an equity deal, but instead offer a higher interest rate backed by the asset.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Christian Walker Hard money lenders might charge 10-12% right now. To have private money, you can offer what you want. 8% could be a nice opportunity to keep your costs low and give a good return. Also, are you going to pay points to them? Will you do I/O payments? Monthly payments? Or lump sum at the end? If this is your first go with private money, I agree to keep it just to the loan and not equity splits. Perhaps, you could entertain that for the next go around with investors you really like working with.
Investor · South East Texas · Member since 2019 · 65 posts · 11 votes
6y
@Whitney Hutten yea I don’t want to share equity. My plan is to use their money to buy and fix up the house and when I refinance then give what i owe them back. So i can keep the house like it’s my own without worrying to pay them monthly and when I sell.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Christian Walker The HML I work with most often isn't even lending to someone who hasn't completed a BRRRR exit yet. So keep that in mind as you negotiate your terms. Your first couple of properties are just to get in the game. With that, their current terms are 2-3% in points, 60-75% LTV and 10.5-12% on the rate for a 12 month bridge loan. What bumps you higher are low credit, low down payment, little experience. If you have a friend or family willing to give a deal, maybe do 1-1.5% on the points, 75% LTV, and 8-10% on the rate and see what you get.
It depends on what type of investing your doing. On my BRRRR projects I pay 10%-12% annually. It's usually short term about 6 months. If your financing is long term then you would likely give a preferred return and then a percentage of profits after all expenses are paid. Preferred return might be 6%-8% and then an equity share when you sell. This is pretty popular in syndications. Long term is approximately 5 years.
Do you use their money for the down payment to increase the loan amount? Also, you think I should have an equity share when I sell instead of just paying them back with the refinance money? This lending stuff is new to me and not sure what is fair with my investors.
It's up to you as far as equity versus debt investors. If your flipping a SFH then it's based on your projection. If your flip time frame is a 90 day rehab, 30 days on the market to get an offer and 60 days to close that's 6 months of borrowing the money. If your equity deal is 50/50 and you have a profit of 30K that's a 15K return to your investor in 6 months. If you borrowed $100,000 that's 15% return. Now if used that money twice in the same year same time frame and $15K return that would be a 30% return for your investor on an annual basis. The opposite could happen you don't sell the property in 30 days instead in takes 7 months to sell that's a total of 12 months to complete the project. Because of the length market time you had to reduce the price. The profit is now 20K your investor return is 10K over 12 months. His return is 10% annually. In that case he receives a lower return then if he were a debt investor of 12%.
My point is equity is not always better than straight debt. It can go either way.