Being a Private Lender to Flippers - Real Numbers???

9 Replies

I am considering the path of being a private money lender for fix and flip investors (I don't have the money to lend at this point, just doing the research).   

I am curious as to the reality of lending out short term loans to flippers (IE 10% for 4-6 month terms).  Assuming I take the proper legal precautions and lend to someone with a solid track record of flipping quick and profitably, this seems like a no brainer as it would return 20-30% annually.  

Am I missing something?  What are the real numbers I could potentially expect from doing this?  

Thank you!

Short term lending is a good business.  That is why there are so many HMLs in every market.  You said you don't have the money to lend out.  That is going to be a hard nut to crack.  You also will need to be able to evaluate properties to make sure you are making good investments.

Thank you for the quick reply  @Neil Aggarwal .  I do not have the money right now, but I am on track to have a large enough amount to start investing with.  I am just asking a theoretical question so I can know exactly what I will do once I have, say, $100-200k.

Tony,

Are you planning on charging 10%+ for 3-4 months?

That's a pretty good return.

Its not 10% for 3-4 months.  Its 10% annualized rate.  So if the borrower pays you off in 6 months, they will have paid 5% in interest.

Thank you.  I thought that might be what is meant when I heard of these short term loans.  

So, just to be clear, anything close to a 10% return on a 4-6 month private money loan is completely unrealistic, correct?

@Bob B. I would love to, but, as you can see, this is more likely a pipe dream.  That's why it seemed like I was missing something, because, if this were available, investors would be flocking to it like mad.

@Tony Hill , when I borrow private money I want it to be a win for both me and the lender.  Most of my flips are all in at $40,000 to $60,000.  My last was all in at $40,000 from my private money lender.  I offered him 15% apr interest only so that its worth his time.  That's only $500 a month on my end but I completed the flip in 3 weeks,  in contract the same day as completion.  We will close in a few weeks.   I only used his money for a total of 2 months or $1000. To me that is not much for the use of his money so I will be giving him a bonus at close.  I want to keep working with him on future deals so I want to keep him happy.  This may not be how others view private money but for me I like to look at it on a deal to deal basis and make it work for both parties.   He doesn't require points up front and most hardmmoney lenders won't loan under $50,000.  

@Tony Hill what you are describing is not that out of line with hml. It is usually structured differently but the net is about the same.

Around here small hml/private lenders are charging 13.5% annual, plus 3,000 in points. 

100,000 loan for six month, returns 6,500 interest + 3,000 in points = 9,500,  if you can turn it twice in a year almost a 20% return.

I used to pay this years ago,but today we are paying 8-10% annual, 0-2,000 fee depending on private lender we are using. 

Thank you for the specific and useful replies!

 @Michael Hicks You seem like the kind of flipper I would be looking to lend to someday for sure.  It definitely makes the most sense to make every deal a win-win, that's the only way to be truly sustainable in my eyes.

@Dell Schlabach It seems like HML could be quite the profitable way to go for a lender, but your personal story is a perfect example as to why it might not be the best path. To lend to more experienced, reliable flippers, the lender will have to lend at a lower rate. No matter how good a deal may be in the HML world, you are still lending to a person who can be a big variable.

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