Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Chris,
You asked about private money lenders and not hard money lenders. All the answers you received are about hard money loans.
I rarely pay points on private money loans. Most deals get 10% or 12% interest based on the loan amount.
So in your example of a $100k loan, at 12% interest, yes, you would owe $1k a month. Typically, I have the loan contract to pay the principle and interest in one balloon payment, and not monthly interest payments, so at the end of the term, say 6 months on flips, I would pay the private investor $106k
For holds, I would structure the interest payments monthly.
Lender · Tampa · Member since 2010 · 5 posts · 2 votes
16y
In Southern California, I've seen 12% interest-only (rate)and five points (fees) to be typical terms (on the loan amount). Most private money lenders offer 5 year terms
Residential Real Estate Agent · Orange County, CA · Member since 2009 · 289 posts · 95 votes
16y
Originally posted by Brian Brady:
In Southern California, I've seen 12% interest-only (rate)and five points (fees) to be typical terms (on the loan amount). Most private money lenders offer 5 year terms
Thanks for the answer. Just so I'm clear lets say I'm loaned 100K (to keep the numbers easy). We agree on 12% interest only, so I owe them 12K/year, or 1K/month. So then the 100K and 5 points would be paid back on the eventual resell/refi? Am I right in this?
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
16y
not quite chris.
you would be charged the points upfront. so you would borrow $100k. pay your 5 points (5k) and would get your 95k. you would then pay 1k a month i/o on the full 100k.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Chris,
You asked about private money lenders and not hard money lenders. All the answers you received are about hard money loans.
I rarely pay points on private money loans. Most deals get 10% or 12% interest based on the loan amount.
So in your example of a $100k loan, at 12% interest, yes, you would owe $1k a month. Typically, I have the loan contract to pay the principle and interest in one balloon payment, and not monthly interest payments, so at the end of the term, say 6 months on flips, I would pay the private investor $106k
For holds, I would structure the interest payments monthly.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Not a problem Josh, no apologies necessary. Often, private lenders are mixed with hard money lenders. It is quite common.
It is just important to understand the difference. Keep in mind that most hard money lenders have a DRE license and private money lenders do not.
As a private money lender, you need to be careful to make sure you only loan for business purposes and not personal, as a 12% interest rate charge could violate usury laws. In CA, the max interest rate for loans is 10% according to current CA usury laws. That law is circumvented (or more appropriately not applicable) when you loan for business purposes and the transaction is facilitated and underwritten by a licensed loan broker.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Hi, right Will. Commercial loans are exempt from consumer usury laws since they are to protect consumers and homeowners. Business loans are presumed to be made to sophisticated or knowledgable borrowers.
Brian, are those 12% rates from individuals or private money through brokers or an entity conduit? In this economic environment, I'm sure many individuals would take much less on a good loan, at least they do in the midwest. Understandably, CA seems to be higher for many things, so I'm not surprised. Bill
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Joel,
I highly recommend you get with your attorney to put all the appropriate verbiage in teh contract as wll as stay compliant with any state laws.
I could certainly send you mine from CA, but then, it may not all be appliacble for your state. Better to have your attorney draft it. Once it is drafted and you pay the fees, you are done. Use it over and over again.
Residential Real Estate Agent · Orange County, CA · Member since 2009 · 289 posts · 95 votes
16y
Originally posted by Josh Green:
not quite chris.
you would be charged the points upfront. so you would borrow $100k. pay your 5 points (5k) and would get your 95k. you would then pay 1k a month i/o on the full 100k.
that's how its always been presented to me.
I have a question about this. For HML, if I'm paying the points up front then why wouldn't I just borrow $105K instead, give back the $5K, and then be left with the $100K I wanted originally? Why would I pay the points up front if I could just borrow a little more to cover it? I mean it looks like I'm borrowing money just to give a portion of it back immediately.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Hi, you're right, you're borrowing the points in a way, if it were exactly five points on the 100 you wanted, it would be 105,260.00. Your deal is probably made to finance the points and with you paying $260, instead of $5.260K out of pocket at closing. So, in that case, you're not getting 5K at closing.
Joel, follow Will's advice here, get an attorney! The cheapest way I know of is to use a LLC with captail contributions to individual capital accounts. 5 is the limit for the SEC but your state may be lower. Also, watch the amounts funded.
Each member can loan money out from that capital account and in the Operating Agreement address assignments of collateral. This is absolutley not a novice venture, talk to an attorny familiar with SEC and investment pools. Bill
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
16y
Originally posted by Christopher W.:
Originally posted by Josh Green:
not quite chris.
you would be charged the points upfront. so you would borrow $100k. pay your 5 points (5k) and would get your 95k. you would then pay 1k a month i/o on the full 100k.
that's how its always been presented to me.
I have a question about this. For HML, if I'm paying the points up front then why wouldn't I just borrow $105K instead, give back the $5K, and then be left with the $100K I wanted originally? Why would I pay the points up front if I could just borrow a little more to cover it? I mean it looks like I'm borrowing money just to give a portion of it back immediately.
you pay points on the total amount borrowed. in your example, if you borrowed 105,000 then your 5pts would equal $5250 so you would 'net' 99750 usable funds.
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
16y
Originally posted by Bill Gulley:
Hi, you're right, you're borrowing the points in a way, if it were exactly five points on the 100 you wanted, it would be 105,260.00. Your deal is probably made to finance the points and with you paying $260, instead of $5.260K out of pocket at closing. So, in that case, you're not getting 5K at closing.
Joel, follow Will's advice here, get an attorney! The cheapest way I know of is to use a LLC with captail contributions to individual capital accounts. 5 is the limit for the SEC but your state may be lower. Also, watch the amounts funded.
Each member can loan money out from that capital account and in the Operating Agreement address assignments of collateral. This is absolutley not a novice venture, talk to an attorny familiar with SEC and investment pools. Bill
And PS. Thanks for the votes as well!
haha, and i didn't mean to be repetitive to bills post. i was typing while he was posting.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Hey, You're on target here Josh! Just the math:
Funding a loan with points included is the same as wanting to net a certain dollar amount after real estate commissions. At 5%, the net sale or loan amount is divided by the reciprocal being .95, rounding between our answers?
Developer · Staten Island, NY · Member since 2009 · 88 posts · 9 votes
16y
i spoke to a private lender in manhattan on january 16th and he said he would lend me a $250,000 to fund a deal at 12% with 4 points up front. The tricky thing is to try to get them to defer all payments until the deal is completed, as I dont have $10,000 to pay up front.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
If you mean you actually need to net $250K off the loan, then just borrow $260,500. That way after they take out the four points you're left with $250K (and change.) You're not going to get someone to defer the points.
Investor · Southern CT, CT · Member since 2010 · 211 posts · 41 votes
16y
Originally posted by Phil Mondiello:
i spoke to a private lender in manhattan on january 16th and he said he would lend me a $250,000 to fund a deal at 12% with 4 points up front. The tricky thing is to try to get them to defer all payments until the deal is completed, as I dont have $10,000 to pay up front.
Phil,
If you don't mind could you PM me or share the information on said P.I? i'm looking for one myself who would get involved with investments here in CT.
Real Estate Investor · Atlanta , GA · Member since 2009 · 70 posts · 15 votes
16y
You pay them more than whatever else they're traditionally investments may be, which is usually around 4%, if you can double that with 8% and afford the points a "private" money investor should be more that happy these days.
Note Investor · Pasadena, CA · Member since 2009 · 849 posts · 544 votes
16y
From a lender's perspective:
Points are another way of describing the origination fee, which the lender is charging in order to cover their costs on the appraisal, comps, etc. to make sure that they're getting involved in an acceptable (to them) deal.
Also, recognize that points are a (relatively) cheap way for the lender to get the borrower to put some skin in the game.
Finally, they charge points because they can. Their attitude is, otherwise, go to the bank.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Again, this conversation keeps going into hard money lending discussion and not private money. Hard money lenders charge points and get them. I rarely would pay points for private money.
Also, many have mentioned increasing the principle to cover the points you must pay upfront in HML's. Keep in mind that there may not be room to borrow more as HML's have a max LTV and if your deal does not have that room, you will be stuck getting less or coming out of pocket for the points.
Another note to consider as this was brought up in a phone conversation recently. Hard money lenders often times take higher risks and thus, are entitled to points, higher interest rates, and other security, where as, my private money lenders have very low LTV's and as such, have a much safer investment. That equals no points and lower interest rates. The more you get in returns, the higher the risk in most circumstances.
Involved In Real Estate · Las Vegas, NV · Member since 2009 · 43 posts · 0 votes
16y
Hey Will, what kind of ltv are private lenders usually looking for? And how about Duration?
I dont know how others think.. but if i have 100k in something like a cd i would love for someone to offer me a long term investment with guaranteed high interest