I am going to borrow money from a friend who is interesting in making some money with me on my second flip. I wont be borrowing much from him but im not sure how much he should make when the house sell. should i do a percentage of what he lends or a set amount on it. I have never borrowed money from a private lender before.
My experience with private lenders is that their return is simply interest on the money loaned. No reason to give him any more unless he is going to take an active part on the rehab.
You could do a point over current rates and set it to a minimum of 6 months with a balloon payment at end. Then he knows how much he is making on his money and hopefully it will be worth his while.
Thanks for the advise. I was thinking it would be best to do interest myself i just wasn't sure how much. He is wanting to help with rehab some so if he helps out a decent amount what would be good for that.
A set note interest rate at or below your state usury rate would be best. As for the labor he may do, keep that separate, pay him for his labor and for the money investment, pay him the agreed interest. North Carolina has some very vague usury laws so I suggest you speak with an attorney or loan broker to stay within the legal limits without gray areas.
Don't give up a percentage, but pay a simple annual interest rate and you will probably need to pay him a couple of points if it's short term. Remember banks are paying terrible rates on CD's.
thanks for the advise. that is a good idea to keep the two separate who knows how much he will help or how useful help will be. I wont do the percentage i miss spoke on that i meant interest on the money he lends. Thanks again
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