Private Investor Loan for BRRR - What's fair?

Question

Hello all, First question as I am new to the forums, is there a way to search inside the forums? I figured the answer to my question has to be in here somewhere :)

We are looking to grow our portfolio using the BRRR strategy. We have our own cash for rehab costs but will need to borrow for the value of the property. We have a private investor lined up (family), what is a fair deal for both us and them? And also, how do you calculate these short term loans - say 3-6 months, no monthly payment, just interest paid once their investment is paid back?

Thank you for your time!

Austin Bankert · Answer

Thank you Kerry! I looked after reading your post and realized I can just use the main search bar at the top :)

I was thinking in the 6-8% range - I want to make it is worth their while so they will continue to want to be involved.

Considering these will be short term, 3-6 months, are you calculating a standard annual rate and then dividing by the number months the money was actually loaned and paying out that way?

Thank you again for taking the time to respond!

Kerry Baird · Answer

Firstly, welcome.

Yes, you can select an option to search in specific forum.

I have a couple of these loans with private investors.  One seller that I did a deal with said he had negotiated with another investor at 6%, and he suggested we start there.  I was thrilled.  At closing, it turns out that he meant 6% interest only.  So my payment is super low while I stabilize the property.  He receives an income, without the tenant, which was his motivation.

Just start the conversation, and see what motivates your lender.  I don't think that 10% is too high, to be honest, especially if you don't have much experience.