Private lender for flip down payment

[Amy Atnip]

New member and fairly new licensed contractor looking for advice. I'm almost finished with my first flip. Another property has become available that I'm interested in flipping, but I don't have the cash for the down payment. If I use a private lender for the down payment only, what should the ROI be for him? How is that determined? Is there a split of profit, or is it just a straight percentage of the loan? Thanks for your help!

[Riaz Gillani]

The ROI you offer this Private Lender (really the gap funder - the private lender is who ever decides to fund the remainder of the acquisition) should be at the absolute least 300 bps greater than the 10 Yr Treasury yield. Mind you that treasury bonds and bills are backed by the full faith and credit of the US gov't so there viewed as a safe investment. It's currently around 2.750 - so your first thought should be 6.000% or so. But a more reasonable starting point for someone you haven't delivered for yet would be 8.00%.

You can also entice someone to loan you this money by offering 50% of profits. Which is fair given that its they who bears all the financial risk.

Also worth noting that your private lender for the remainder of the acquisition may require your funds be seasoned. They most certainly won't be willing to be subordinated and are unlikely to allow a second position at all.