Private Lending Terms

4 Replies

While I am not new to real estate, I work in conservation in same-as-cash only (Day-job). I watch brokers make thousands of dollars on the multi million $$ deals that I work, while I earn a meager wage... comparatively speaking. I have extensive knowledge in sales, research, negotiation, identifying a good deal, title and closing matters; but have no experience with private lending in the residential arena. I have made an offer on a property in the last 24 hrs, with a 15 day inspection, 20day closing; (you know jump off the cliff, and make a deal before the end of the year) managed to secure both hard money and a private lender. I have been asked to state my desired terms. I have excellent credit and low debt. I have no idea what good/fair private lending terms I should request. It’s a 70k fixer-upper bungalow on a quaint lake that would make a nice VBRO in a small rural town. VBRO activity has been verified successful in the immediate area. Post renovation value estimate 90-110.  I have at least 20% cash. I am lining up conventional funding and would like to have it fixed up and running in no more than 3 months. I’d like to cash-out refi to conventional with 6 months and pay off the private lender and hard money lenders. What various options are reasonable to request?

Thanks Kim

When you say "private money" are you referring to friends, family, etc, or is this someone advertising money? Most lenders will state THEIR terms. Obviously, get it as cheap as possible. I have had lenders give me terms from 6.25% up, some with a prepayment penalty. Others want interest only, and some are good with full amortization. 

This is a friend of the family that invests through private lending. He is also a heavy real estate investor in his market. So while our relationship is cultivated enough that he is willing to give me $56+ Agrees that the deal is good, I don’t want to ask for unfair terms and would like to know what reasonable negotiation parameters should be. 

Is a prepayment penalty of one year unreasonable. I’d prefer 6months, but at what rate. If interest only, what is a good rate? What is a reasonable return on 56k for 6 months. I just Need the $ for 20 day closing while my banker is tip toeing through the tulips For the next 3 months. 

Originally posted by @Kimberly A Hall :

Is a prepayment penalty of one year unreasonable. I’d prefer 6months, but at what rate. If interest only, what is a good rate? What is a reasonable return on 56k for 6 months. I just Need the $ for 20 day closing while my banker is tip toeing through the tulips For the next 3 months. 

See what he is asking. I do HML and write for one year with no prepayment penalty BUT my rates are very high. Ask him if he will do 6% and see if that fits in his model. BTW, if he does, have him call me:))


BTW--I just got money at a pretty good rate but there is a prepayment penalty for the entire term of the loan (5%).

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