ROI for private lender

5 Replies

I have the possibility for a loan from a private investor for my next investment home purchase. I haven't accepted private money before, nor has my potential investor loaned money for such an investment before. I need help in understanding what is a reasonable or "standard" return the investor can expect and how the loan should be structured.  My intention for the property is to buy, rehab, rent and refinance. I would pay the investor back in full plus their "return" when I refinance. So if things work as planned the loan would be fairly short term. Any advise or info would be appreciated.

Absolutely. It all depends on what you both want. The investor wants a return on his investment and you want the use of his money until you can refinance it. You guys both need to determine what that timeline looks like what the percentage rate should be and what the penalties are if you don't meet the guidelines. Ultimately this is meant to be an amicable relationship where you both get what you want/need. this should all be done in writing and with a valid contract normally done by a real estate attorney.
As far as return goes, all that really matters is what he wants as far as return. I can tell you for hard money loans, which are usually going to be shorter term loans like this one sounds like it's going to be, the numbers range from 10 to 15%. But, if he's reasonable, potentially a known quantity and willing to loan you the money, he's assuming quite a bit of risk for your benefit and should be compensated for that. He's tying up capital for 6 to 12 months potentially and those short term returns I would expect to be at least in the 7 to 9% range. I hope that helps!

Lamont, thank you for your response. I was thinking along those same lines and your answers reinforces my initial thoughts.

@Joseph Billow Keep in mind with a BRRR, you can only borrow approx 70-75 % of the ARV, so you have to be certain the appraisal comes in high enough to pay off your investor. Are you forcing equity in the property?

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