What kind of returns are Private Lenders looking for?

6 Replies

Please note: this is NOT a solicitation, I'm just looking for some honest feedback.

I have been working within my local network to partner with some investors.  Initially, it has gone "okay" with two local contacts investing in my fix and flip projects.  One has already closed, and the investor was thrilled with the return, and will be investing again.  However, my area is somewhat small, and the pool of investors is even smaller.

I just secured all of my required SEC 506 (b) and (c) registrations/exemptions and filings, and can now partner with investors nationwide.

My question is what sort of rate of return will be attractive to an experienced metro investor?  I feel that my current offering is very competitive, but I also understand that Private Investors get a lot of deals presented to them.  What makes a deal special?  What sets it apart from the standard RE flip deal?

Thanks in advance for any insight.

Thanks so much for your replies.  I am feeling much more confident now, as I am offering a much better rate of return locally.  I am looking forward to branching out.  Thanks again!

Originally posted by @Joe Hughes :

...My question is what sort of rate of return will be attractive to an experienced metro investor?  I feel that my current offering is very competitive, but I also understand that Private Investors get a lot of deals presented to them...

 So how would you define 'very competitive'? What rate are you offering investors? What amount are you trying to raise? 

@Greg F. thanks for the post.

I have two investor options; one for short-term rehab and flips.  The return is a simple 12% annual interest OR 16% of the net profit, whichever is greater.  The 16% of profit is always the higher of the two.  It is a note, backed by a first lien position.  General time frame of the investment is usually about 3 months.

The other offering is for long term buy and hold rentals.  A very simple 50/50 profit split.  I am the managing member and secure the below value property, rehab it for a reasonable budget amount, and place a high quality tenant in place.  The capital investor finances the deal, and gets 50% of the net monthly rentals for as long as the property is held, then 50% of the proceeds if the asset is ever sold off.  This is secured with a Joint Venture agreement.

I currently have a deal pending in each bucket.  The short term flip funding amount would be roughly $55,000, with anticipated net profit of $30,000.  The buy and hold funding needed would be roughly $45,000 and the net monthly income would be roughly $675-$700 per month.

Joe Hughes you are the first person I've seen on here using this exact structure for but and hold partnerships. I'm doing the same exact thing right now and in the process of finalizing details. I would be very interested to hear any major lessons learned from your first project.