Generally...what's a good rate for a hard money lender?

Question

I was investigating certain hard money lenders and was seeing 15-18% with a maximum term of 5 months...that seemed outrageous to me so I wanted to check in and see what would be considered a "good" rate.

We can use an example of a 30k house with an estimated 20k in rehab.

Thanks so much!

We can use an example of a 30k house with an estimated 20k in rehab.

Thanks so much!

Jay Hinrichs · Answer

small loans have much higher pricing... you cannot exponentially compare to larger loans.

its all about doing a file..

so you can do a 2 point 12 % on a 50k deal.. that's a whopping 1k fee.. won't stay in business doing that.  you can do a 500k deal like that and do fine.. just as much work putting together your little 50k deal as there is a 500k deal.

this is why most HML don't lend those small amounts and those that do are very expensive.

I know for me I want 3 to 5k per file period end of discussion. other simply not worth the brain drain or RISK...to make a measly 1k fee.

Jay Hinrichs · Answer

@Stephanie Potter  I am in the camp to not borrow on personal resi.. as it should be sacred and your emergency fund if you will.

Also helocs can and do get called.. it sounds like your a HML.. not sure about you but I have bailed out quite a few folks that got their helocs frozen mid rehab and had no money to finish or pay their payments.. read the fine print in a heloc..

Jeff Rabinowitz · Answer

As @Jay Hinrichs stated above, HELOCs do get called. If you decide to go that route you may be well served to draw enough funds toward the beginning of the project to ensure you can complete the project. Draw out some extra, if there is room, to cover unexpected expenses and keep the funds in a bank other than the one that loaned the money. This will cost more interest but may prevent you from scrambling to save your personal residence if the HELOC gets frozen or called due.

Stephanie P. · Answer

@Cullen Hardy

For a loan of that size, you would be well served to gather some family members together, promise them all 10% on their money and finance the first few that way.  If that falls short, try a HELOC on your primary residence or go seller financing for the purchase and then a variety of credit cards to carry the rehab.

Lots of creativity is going to be your ally.

@tarik turner is pretty close on the parameters of fix and flip money with a 75K minimum loan amount (3-5 points with about 11% simple interest for 12 months)

Stephanie

John Mathewson · Answer

Touch question there is a huge range and I'm sure a bunch will jump on and give there rates. Typically it all varies on the borrower. The better the borrower Ive seen no points and 10% and then the first time investor I've seen get 4 points and 16%. 2-12 I guess would be a decent starting point for someone.

Your example is low though most wont like to lend that little. Hope that helps though let me know if you have anymore questions. I have some contacts in the area I can recommend.

Jay Hinrichs · Answer

@Nicholas Wootten  in SF its a no brianer

here are 3

realty share   tell them I sent you

Lending home tell them I sent you

Conventus  tell thejm I sent you.. although I have borrowed from them they may not know me personally

Jay Hinrichs · Answer

@Marty Johnston  yes Marty I understand that  take a look at Lendinghome.com rate matrix.. its quite complex with many choices.

I just did one in Sacramento at 2 and 8 .....I was the borrower..

my bank loans for my new construction are 1 and 6 to 6.5  so HML rates are definitely coming down with the flood of money into the space and the crowd funding portals.

where the local guys can retain market share is by giving their best borrowers much lower cash equity requirements.. I know some of the top lenders here in PDX will do 100% for their prime folks up to 80% arv... so in essence a no money deal.

But on Tiny loans and I call anything under 50k a tiny loan.. just makes no sense charging 2 points on 50k... most lenders are borrowing their money from someone so they have a cost of capital and make maybe a 1 to 4 % delta on the interest rate spread... and of course they can charge 2 points then load it up with another 2k of junk fees  LOL.. I get that..

but to do a HML and I have done my share 3k a file is the absolute minimum one would want to NET coming into the lender... from my perspecitive.. in my Go go days I did 40 plus loans a month and served the tiny loan niche in the mid west... So we made it up in volume. we borrowed on master lines of credit from our banks at 5 to 6% then loan it back out.. so we capture the points and our rate was 12 to 15% ( pre 2010) so we had a pretty nice delta going on the 30 million we had out.  but with that volume it took 12 full time peeps plus myself the owner.

Boris Grinberg · Answer

I am a hard money lender and agree with @Jay Hinrichs. Go to HML, do a few flips and keep some dry powder in case of emergency. Small loans are more compex and you will struggle to find sensible rates below 75k. Above 75k it all depends on your LTV. 75-80% should get you around 9-10% and 1-2% upfront. Above 80%-85% LTV will cost you more. These numbers based on Loan To Cost. If you have any specific questions, happy to chat.

Stephanie P. · Answer

@Cullen hardy

@Cullen Hardy

I don't know if the forum will remove my post, but yes, that's the best way to go initially if you don't mind involving your primary residence.  Some people are vehemently against using their primary residence to buy investment properties and others think it's stupid not to.  There are great arguments on both sides.

If you do get a HELOC, depending on which bank you use, you can pull out equity at around 3% (the best part is you only pay on the money you use) and can pay it back when you sell the investor property and do it again and again and again until you don't need lenders like me.:)

Good luck

Stephanie

Tarik Turner · Answer

Depends on the deal. Anywhere from 3 to 5 points and 10 to 12% interest is pretty standard for HML deals

Generally...what's a good rate for a hard money lender?

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