How much should my Private Money charge me to fund my Flips?
I am on the verge of accepting private money from friends and family who trust me and know the capability of the business. I am struggling to understand just how much I should be charged for the private money. They aren't really RE investors but want to invest through me. Is there an "Average" percentage I should be paying them for their money or should I pay them a high return so they can stay motivated and keep investing in RE through me?
If they are giving you 100% financing I would say 12% - 15% of the total loan amount is around the going rate.
It's the details of the loan that matter. Their are different ways to structure these loans.
Let's say 3% origination & 12% monthly interest only payments spread over 6-12 months OR 15% monthly I/O payments until the loan is paid in full. Is there any type of pre payment penalty?
Just make sure you know what you are signing!
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Thank you for the reply!! So if I understand correctly, If I get 100% financing for let's say 250K at a 13% monthly interest payments spread over 6 months I would pay $2,708 a month. $16,250 for 6 months correct?
Quote from @Matthew Crivelli:
If they are giving you 100% financing I would say 12% - 15% of the total loan amount is around the going rate.
It's the details of the loan that matter. Their are different ways to structure these loans.
Let's say 3% origination & 12% monthly interest only payments spread over 6-12 months OR 15% monthly I/O payments until the loan is paid in full. Is there any type of pre payment penalty?
Just make sure you know what you are signing!
Thank you for the reply!! So if I understand correctly, If I get 100% financing for let's say 250K at a 13% monthly interest payments spread over 6 months I would pay $2,708 a month. $16,250 for 6 months correct? And when I sell the property i give them back their initial 250K with them profiting the $2,708 a month for however long the deal take?
Thats about right. Don't forget about the 3 points of origination he mentioned. So, you'd pay $7.5k upfront (3% of the 250k) plus $2708/mo in interest.
10% or more makes sense, especially if they are funding the entire project you aren't putting in anything. As mentioned, there are many different ways to structure the loan depending on what you want to or are willing to do.
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
- Austin, TX
Standard right now is 10% interest yearly payed monthly. I would negotiate it to where all interest is paid on the back end
All depends on the loan amount, your experience, term, property type, location, etc...
On average, I am seeing 10-12% at 80-85LTC for experience between 1-5; 9-11% at 85-90LTC for experience over 5.
At 100% financing, 12-15% and need to have had at least 30 in the past 3 years.
Points can be anywhere from 0-3 for lender origination.
Cheers!