What Terms Are You Getting For Private Money?

Question

Hello all,

I'd like to know what would be considered "good" terms on a private money loan.

I am in contact with a hard money lender who's terms are 9.75% interest and a 1.75% fee.

Do you get considerably better terms with "private lenders"? Is it worth the effort of finding these "private lenders", or are their rates comparable to those above?

Thanks in advance,

Nick

Account Closed · Answer

Private / hard money rates differ almost entirely based on location, with California seeing the most competitive rates due to lending laws and competition there (coupled with swift rising property values). There are some big money players ($500M+ funds) that have entered in the last year, one of them being in @Rick Pozos state of Texas. They charge 14% and 4 points but will basically lend to anyone with a credit score above 650.

I encourage everyone to actively shop around and collect several data points from various lenders and compare rates. For instance, I lend on the East Coast and my rates are much more competitive than the bigger players', typically falling between 11-13% and 1-2points. But yes, @Nick Zocher  that does sound like attractive terms to me and if your lender is competitive, it should be no prepayment penalties and interest only payments.

Jay Hinrichs · Answer

those are good hard money rates.. private lenders a lot of time will be MORE expensive ... and or will be about the same..

only way to get much cheaper is a bank or direct friends and family... its a misnomer that there are all sorts of private folks just chomping at the bit to make 7 to 8 % in the uber risky real estate lending business

Account Closed · Answer

@Nick Zocher

I am a private lender but I haven't done a debt deal in a while.  When I did I lent at 13% and a point.  I'm now exclusively doing equity deals where I share in the profits.

Good luck

Nick Zocher · Answer

@Rick Pozos Rick, thanks a lot for the warning. I found this lender off of the BP list of hard money lenders in the state of CA, so that gave me a bit of comfort. I would surely ask BP if people had worked directly with them before I got in bed with them

Jo-Ann Lapin · Answer

Good Mornring

We typically are at 6 to 12 1.5 points to 3 . 5 to 7 years no ppp. Happy to speak.

Rick Pozos · Answer

For Hard Money, that sounds a little too good. I am seeing about 2 to 4 pts and 10-14% interest. PLEASE make sure that the lender has an office in your city. There are too many scams going on. They will lead you to believe that they are ready to close and all you need to do is send them their "fee" or "points" so that they can wire the money over. I have heard too many stories where money gets sent, nothing happens. And you look like the bad guy. I am getting to be the crusader for the HML scams. If you have not met the lender, seen his office, know someone who has done a deal with him, dont do it. You will regret it.

I am getting ready to borrow from a friends sdira and we are doing 2pts and 10%. BUT there were just a few questions so that she feels comfortable. No application, no appraisal or appraisal fee, no comps needed, no credit pulled, no hassle. 10 minute phone call. I have financing in place. All of that could be done, but she knows me and knows that I know what I am doing. This is not my first rodeo.

Another friend, who is also a friend of the above has already lent me money several times( I come highly recommended). We are doing 2pts and 8%.

Nick Zocher · Answer

Jay, thank you! I thought they were pretty favorable based on others I've seen, but it's reassuring to hear it from experienced folks.

Nick Zocher · Answer

Thanks, Sheryl. Have you worked with private money lenders before? I was really hoping to get a real example of a loan term someone has had with a private lender so I could compare it to the terms I have with hard money lending above.

Sheryl Griffin · Answer

Hi @Nick Zocher,

Typically Private money lenders are cheaper - quicker - more flexible.  Also, they will have better terms because it's "their" money - you're talking to the person who actually has the money.  You will find PM's at REIA's, Meetups, Family or friends, other investors or the courthouse steps - investors who go to auctions will purchase with cash - good place to find them.  Hard money lenders charge higher interest plus 1% of the loan amount, then they usually add on appraisal fees, inspection fee, draw inspection fee and doc prep fees....lots of fees.

Hope this helps.

Sheryl

What Terms Are You Getting For Private Money?

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