Am I paying a competitive rate to my Private Lender?

Question

I invest in Tax Liens/Deeds in Alabama.  I purchase, rehab and rent.  I pay back the private money monthly calculated as a simple loan.

I mentioned what I was paying to a seasoned fix/flipper that told me I was paying way too much. (14% on a 2 or 3 year loan)

Am I really paying too much? (compared to what other investors are paying? )

Is there a better way to structure the deal?

Keep in mind I can't add liens to the property, and if previous owner redeemed, I make money from repairs and interest rate.

So, I give promissory notes instead of liens.

Roman M. · Answer

If it is unsecured loan then I don't think it's high.

Some lenders may advertise lower rate but if they don't lend for your particular situation then what good is it.

What matters the most is not the lowest rate but ability to borrow for what you need.

Taylor Chiu · Answer

Seems high if you offered a lien. If that were the case, I would expect more in the 10-12% range. But without it, I'm not sure.

Have you tried to negotiate them lower, or find other lenders at lower rates?

Bob Woelfel · Answer

@Danny Price you might be paying a little too much or you might not.  If these lines are unsecured by the property then it's a little different than the typical lender/rehabber type loans out there.  What is the security the lender has on these deals?  It sounds like you have experience, but that level also plays a role.  I'm sure you could do better, but if you are happy and your investor(s) are happy then what's the difference?  Maybe at 12% the investors walk.  How long have you been doing this with them?  If you have a track record of a couple years of successful deals then you probably have enough equity with the investor to negotiate.  Good luck.

Kyle J. · Answer

I agree with the comments above that point out that any lender who would do a loan like this (not all will) is likely to charge a higher rate to compensate for the higher risk associated with it being an unsecured loan.  I've made private real estate loans before and I would not make a loan like this, so be glad that you found a lender that will.  If it works for both you and your lender, that's all that matters.

Daniel Kong · Answer

I think the fact that its unsecured makes it reasonable. The lender has no recourse if you just decide to "not pay". Thus, with higher risk, a lender will need a higher reward. If it was secured, then 10-12% would be more normal.

Justin Kane · Answer

paying too much is relative, but with that being said.. yes, i have found easy money as cheap as 6% long term no points before .. depends how hard you look and how credible you are

Am I paying a competitive rate to my Private Lender?

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