I have a private lender up front fee is it a scam ?

Private Lending & Conventional Mortgage Advice

I have a private lender up front fee is it a scam ?

Chicago iL · Member since 2014 · 20 posts · 1 vote

I have a private lender who is loaning $80,000 at 4% interest paid back at $266 a month for six months with the $80,000 paid back at the end he's charging $800 origination fee is this a scam ?

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

I will buy everyone who replied on this thread a steak dinner in Chicago if this is a for real lender

@Jon Holdman no one lends at 4% unless its your aunt milly or your parents.. there simply is not enough revenue coming form this to make it worth any one's while.

Private lenders don't advertise they usually don't charge points and they don't put their money out that cheap.. crazy risky and simply not real.

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
That would be one point, which is pretty low. And 4% interest is crazy low. Assuming the $800 origination fee comes out at closing, and is not a non-refundable fee you have to pay up front, that seems OK. If this is a $800 non-refundable fee you have to pay at the start, then, yeah, its probably a scam. You pay the $800 and that's the last you hear from this lender.
16 Reply
Patrice Penda
Investor · Hoboken, NJ · Member since 2016 · 464 posts · 179 votes
8y
JUST based on those numbers. I don't see why it would a scam
These are very reasonable lending terms, in my opinion.
If I was trying to raise money from a private lender, I would go for it.
No doubt!
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Tyler Mullen
Investor · Kirkland, WA · Member since 2017 · 310 posts · 271 votes
8y
You may want to do some research on this person and their business. Check them at BBB, look them up in the county jail and court records and public records to see if they have court filings you’re not comfortable with or judgements against them.
Do they have references for other happy clients? Background check them too.
2 Reply
Troy Sheets
Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes
8y
Originally posted by @Jon Holdman:

That would be one point, which is pretty low. And 4% interest is crazy low. Assuming the $800 origination fee comes out at closing, and is not a non-refundable fee you have to pay up front, that seems OK. If this is a $800 non-refundable fee you have to pay at the start, then, yeah, its probably a scam. You pay the $800 and that's the last you hear from this lender.
Was going to say, nope, pretty standard to pay fees/points and 1 point is pretty standard, we've paid up to 3. That loan sounds too good to be true. Don't pay anything up front and you'll be fine. They can take that $800 fee out of the funds they provide you at closing so you're paying it that way but definitely no up front payments.
3 Reply
John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
Ask them to take points at closing. If they agree, go for it. If they refuse, better get GOOD and VERIFIABLE references. Sounds questionable to me. Too cheap!
1 Reply
Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
4% is very low for private money so that's a great person to keep handy assuming it's legit!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
I will buy everyone who replied on this thread a steak dinner in Chicago if this is a for real lender
@Jon Holdman no one lends at 4% unless its your aunt milly or your parents.. there simply is not enough revenue coming form this to make it worth any one's while.
Private lenders don't advertise they usually don't charge points and they don't put their money out that cheap.. crazy risky and simply not real.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
It is indeed the 4% rate that makes me wonder if this is real. @Mark Crutcher when does the $800 have to be paid?
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Mike H.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
8y
There's no way that makes any sense to a lender. I think thats why Jon is suggesting if its an upfront fee, its probably a scam.
$800 for an application/doc fee is about normal for some. But then they're charging 4% interest and no points? Unless thats your uncle doing you a solid there, there's no way those terms could come from any lender in the business. They'd lose their shirts giving those terms out.
I'm going to say the 800 has to be an upfront fee because the terms have to be coming from a phony company. Which is why you should never pay anything up front unless you're positive they're a legitimate company. Otherwise, all this proposed lender has to do is switch their terms from 8% to 12% and charge 4 points on the back end and most of us in here would probably say that seems reasonable.
Right now, the private lender is so ridiculously low with their terms that there is no way that can be true. Not unless the poster misunderstood something.
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Mike B.Pro Member
Developer · Chicago, IL · Member since 2013 · 435 posts · 358 votes
8y
aaaand if the lender happens to be legit, please send me their info.
6 Reply
Steven J.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
8y
I'm replying just for the steak dinner.
And yes, if this was legitimate I would LOVE those terms. like others above said if they won't take the $800 out at the close of the loan and the $800 is used upfront for a 'processing fee' or other its scammy.
4 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
@Jay Hinrichs Can I still get a steak dinner if I say this loan will never happen and the $800 wire transfer would never be recovered?
Will you throw in a couple Jamesons on the rocks if the "lender" isn't interested in the full details of the transaction and the borrower's financials?
Oh nevermind... you're only bucking up if the lender is legit.
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Sherman Ragland
Involved In Real Estate · Upper Marlboro, MD · Member since 2014 · 246 posts · 230 votes
8y
Probably not a scam, but also not a “Private Lender” either. A private lender is someone that you cultivate, and you dictate the terms. Someone who charges up front fees, and brings their own docs is a Hard Money Lender. They are in the business of lending. If you are a newbie, they will lend when even your momma says “NO!”, but ultimately, you’ll want to cultivate your own sources of money where you are in control of the deal. Putting together your own program and you calling the shots is a true Private Lender/Private Investor program.
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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
LOL.
Lend $80k to a stranger on the internet, earn $1596 if said stranger's project works out 6 months later.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Sherman Ragland I know your super experienced but I just can't agree that this particular scenario is for real.. I agree with your definition of private VS HML.. but these guys on facebook Linkdin BP connected investors.. that offer 3 to 5% money with no or super low points.. short term rehab loans 100% LTV or whatever.. they just take what ever they can get up front and go dark.. they are not real..
its the Nigerian prince scam of real estate lending.. I call it due diligence pump and dump
@Tom Gimer your too late for the steak dinner.. but I will be in Philly and Balt middle of Jan maybe we can grab a beer.
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Joe Nagle
Investor · Bristol, PA · Member since 2016 · 34 posts · 13 votes
8y
Jay Hinrichs what’s your reason for coming to philly? I’m an active investor in the Philadelphia market. Just picking your brain a little.
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Sherman Ragland
Involved In Real Estate · Upper Marlboro, MD · Member since 2014 · 246 posts · 230 votes
8y
@Jay Hinrichs - no argument here. Did not see enough in the (original) post to make that conclusion. My point was that a) Upfront fees are unusual for "Private Lenders", and b) If they are charging up front fees, they are Hard Money Lenders (HML), or as you conclude, "scammers".
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Sherman Ragland that makes sense I know your too smart to fall for the loan terms of 4% and 1 point for private money for 6 months you only get that from relatives.. private lenders want better than bank rates.. not less.. that's one thing people don't really get.
may be a touch less than HML but any private lender who has half a brain will scope out HML rates and then just back off a touch.. not half :)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Joe Nagle:

Jay Hinrichs what’s your reason for coming to philly? I’m an active investor in the Philadelphia market. Just picking your brain a little.
Vendor trip ... will be meeting with a few of my vendors.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
Yeah I usually do not respond anymore to people asking about loans like this. It really is laughable.
There are much better investments for a lender where they could stay liquid and collect 4% versus loaning on a hard asset that may or may not pan out and perform.
Lenders price in risk for a reason. Some HML's I know keep the points charged for themselves and then give the loan spread to the investors or vice versa.
I do not have experience in the loan arena much. That is what Jay does all day long.
The scammers tend to make the amount so nominal like 500 bucks,800,1,000 and have things seem legit. Once the money comes in they are off to the next one. There are people in real estate lending that are fee takers and make a living off of sucking people in and re-trading them. They take a fee and then make up some lame excuse in underwriting how the terms have changed because of something with the borrower or property. They put it back on the borrower as to not take accountability themselves. Every once in awhile on an amazing property they close something to try and show the SEC they are a real lender and if the borrower does not perform they take back the property.
People want to believe in the Unicorns and Leprechauns. I have seen it for a decade on this site. People need to learn the true cost of money and borrowing to structure a deal.
No legal advice given.
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2 Reply
Ryan Beasley
Real Estate Agent · Augusta, GA · Member since 2017 · 83 posts · 46 votes
8y
Either one of two things are happening here: 1) Your "lender" has no concept of capital market return opportunities elsewhere, higher than 4%. There's no way someone (not an institution) should lend at only 1.8-2% over the risk free rate, especially in this economy. I don't know your borrowing risk but Real Estate investments in general have a way higher Risk Premium than that. So that interest rate makes no financial sense. 2) You're getting scammed.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Ryan Beasley I vote for number 2 in your post.. LOL
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Alex Corral
Denver, CO · Member since 2017 · 142 posts · 104 votes
8y
Mark Crutcher did you see this on Facebook? Some guy Hassan from Capital Holdings? If so, I replied to his ad too. He emailed me a weird contract with all kinds of typographical errors. No thank you!
1 Reply
Account Closed
Riverside, CA · Member since 2017 · 412 posts · 296 votes
8y
Originally posted by @Mark Crutcher:

I have a private lender who is loaning $80,000 at 4% interest paid back at $266 a month for six months with the $80,000 paid back at the end he's charging $800 origination fee is this a scam ?
Run the name through RipOffReport.com and see if anything has been written.
0 Reply
Rob Gillespie
Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
8y
@Mark Crutcher
Hi Mark,
I refer my buyers to a lender that charges up front fees, but ONLY after they are approved. I actually had a buyer not get qualified at the end of the process once and without asking, the lender gave him his money back. So it is not uncommon.
With that said, the "scam" part of that question is the 4% rate. That seems VERY low. In my opinion one of a few things are causing that.
1. They are REALLY strict on credit and income of the borrower and there are some back end fees in there.
2. They are doing a "Loan to Own" which means they lend based ONLY on the property in hopes the borrower will default so they can take the property.
3. They advertise a 4% rate and take up front fees to only raise the rate before the closing.
4. They are really inexperienced and justify 4% is quadruple bank returns.
Any way you look at it, just make sure your deposit is refundable if you choose not to take the funds or do not qualify .
Good luck mark!
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