Austin, TX · Member since 2014 · 26 posts · 12 votes
Hello,
I've done a few deals as a private investor, lending money out to buddies who are doing fix and flips and buy and holds. My money is lent to them to acquire the property and for construction costs. Things have gone very well so far, and I'm looking to scale this out.
What are the current terms people are seeing in the marketplace for hard money lending?
Interest Rate?
Upfront Points?
I'm doing deals in Houston, Texas, but any feedback is much appreciated.
Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
6y
@Nigel Prentice
I know people that pay less and I know a lot of people that pay more. I believe as you get more experienced you tend to pay less for your money. I heard a saying when I first started in real estate, “you can tell the experience of the investor by what they pay for their money.”
I paid higher rates, around 12&2, when I first started 8 years ago borrowing from HML's. Now, after averaging 50 deals a year between wholesaling, flips, and buy&holds over the last 2 years, the rates I pay have come down.
I have borrowed and payed back millions and lenders and I a lot of money together.
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Nigel Prentice In the Kansas City market you would be looking at 12% of the loan amount and 3 points up front. Typically it is 11-15% with 1-5 points. Hope this helps!
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y
It's super competitive these days. I've moved almost completely to private money in this space because the cash-flush people who want into this are generous with terms along the lines of 10% interest along the way and 1/2% at each closing, or 13% all at closing of sale or refi on flip loans.
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
Thanks, @Don Scott, I appreciate that insight. Do you do the lending side or the borrowing side, or both?
Those rates seem really low. Is that because there are lots of hard money options in Houston right now? Or lots of easy to get funding options? or something else? In Austin, I'm hearing 10-12% and 2-4 points.
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Will Fraser I'm private lending and I'm a hard money lender. I guess you mean private lending from individuals versus hard money from full time lending businesses.
I think that's really cool that you are able to do deals with private money. Are these deals for yourself, or for your clients (since you're a realtor I assume you are helping buyers put together deals). Is that true?
Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes
6y
@Nigel Prentice
I know people that pay less and I know a lot of people that pay more. I believe as you get more experienced you tend to pay less for your money. I heard a saying when I first started in real estate, “you can tell the experience of the investor by what they pay for their money.”
I paid higher rates, around 12&2, when I first started 8 years ago borrowing from HML's. Now, after averaging 50 deals a year between wholesaling, flips, and buy&holds over the last 2 years, the rates I pay have come down.
I have borrowed and payed back millions and lenders and I a lot of money together.
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y
@Nigel Prentice
I don’t do private money loans to my clients in order to help them out with purchasing a home since that could be a bit of a conflict of interest, but I have several friends and connections in different spheres that look for funding sources and I love partnering with them.
 and you’re right, functionally my definition of private money is not very different than Hardmoney, but locally when people refer to Hardmoney lenders they are talking about the few people who do this institutionally, instead of people who do a few a year with far less structure.
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Will Fraser Thank you for the clarification and for sharing.
@Don Scott Your business sounds quite successful. Good job, man. And I like that insight around the cost of money as a function of experience. I guess that goes for a lot of industries. And by the same token as a lender, the more experience I get the more income I will hopefully from my borrowers.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
@Nigel Prentice as a loan officer for hard money I would say that it's hard to give you a definitive answer. I've seen very experienced investors look at 4 points because it's a small deal. The terms also vary from lender to lender. I'd guess if you call around and you have an example deal to use you can get a better idea of what they offer you, but just as an aside, don't fall in love with just the rates and points. Depending on the lender/situation it could be beneficial for you to pay more points or a higher rate if there are other perks the lender might offer that are amenable to you.
I've done a few deals as a private investor, lending money out to buddies who are doing fix and flips and buy and holds. My money is lent to them to acquire the property and for construction costs. Things have gone very well so far, and I'm looking to scale this out.
What are the current terms people are seeing in the marketplace for hard money lending?
Interest Rate?
Upfront Points?
I'm doing deals in Houston, Texas, but any feedback is much appreciated.
Thanks a lot,
Nigel
Depends on the area and expertise.
I personally borrow at 8.5-9.5% with 0 points. No minimum interest period. 80-95% leverage (rate is dictated by leverage).Low fees (this is where some HML's try to get new guys)
Now, unless you can become a HML of real size, you can't charge HML rates IMO. For PML, you need to be a little cheaper than hard money. All my private lenders are cheaper than what I pay my HML. If they weren't, I wouldn't ever use them. A HML charges a bit more, but has "unlimited" funds and can guarantee closing.
Duluth, GA · Member since 2017 · 11 posts · 4 votes
6y
@Nigel Prentice Im not sure if the market rate varies per state or area. All of the hard money lenders I’ve spoken to operate nationally. Are you only looking to do deals locally?
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Matthew Brown So far, I'm only looking locally. I don't have "unlimited" deal capacity, so I don't necessarily need to scale beyond Houston and Austin. (Live in Austin and I do business in Houston.) So since I'm only doing a few deals at a time, my thinking is to do them in my backyard to reduce at least a bit of risk. I'm open to doing deals in other areas, just haven't given that much attention and research to build market knowledge.
@Syed H. I appreciate the insight. One of the biggest things I've learned in this thread is that experience matters. The party with more experience gets terms more in their favor. Secondly, I'm learning that I'm actually more of a Private Money Lender than a "bona fide" Hard Money Lender. (Since my deals so far has been with people I know.) But I also know that this is somewhat of a semantic distinction since I have other friends who continually lend out their capital to strangers who they put through their own "underwriting" process. Thanks for your thoughts on this!
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Odie Ayaga Very good points your making there. As a reminder, right now I'm on the lending side, not the borrowing side. But since you brought up other features from the borrowers perspective, what could a few of these features be? Like grace periods, free surveys, free legal work, concessions at closing, access to real estate agents at no cost? Stuff like that?
Developer · Member since 2020 · 13 posts · 6 votes
6y
@Nigel Prentice
Hi, I have a hard money lender and he charges me 1% per month . I borrowed 200k on last project,paid back in 6 months and he got 12 k on top of his investment.
No strings attached, just wrote up a deal explaining terms
Investor · Houston, TX · Member since 2017 · 71 posts · 38 votes
6y
surveying the market, there seems to be a shortage of good deals at the moment. In Houston, were seeing a very competitive market and any good deals on the MLS are gone quick. I believe this due to a combination of reasons such as, low inventory, affordable pricing and low interest rates. i believe that as time goes on we will continue to see a shortage of good on AND off market deals, while also seeing a large increase in home values and appreciation, especially in the single family sector as home prices rise. Good time to buy in Houston TX
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
@Nigel Prentice my apologies I just reread your post and missed that you were on the lending side. As a private money lender you can do a number of creative things and they might vary depending on how well you know the borrower and what kind of a track record they are. The way I see it is what you offer as a private money lender versus hard money is less hassle and better rates primarily. After that borrowers would probably look at either no points or rolling the points into the loan...essentially whatever they can do to lower any closing costs. That's a big one for borrowers. The way we would do it is to balance a perk for something else so maybe you are offering 7%, 3 points, but you'll roll the points in for a higher rate. Another thing you can offer is smaller loan size since most hard money lenders won't do loan sizes of less than 50k. You could offer a lower rate for a piece of equity...there's a lot of things you can do you just want to develop a rapport with the borrower to get a feel for their pain points and how you can help relieve them.
Real Estate Agent · Houston, TX · Member since 2017 · 159 posts · 161 votes
6y
A few people I've talked to in Houston have been along the lines of 10-12% for newbies with 10-15% down with 2-3 points but they'll knock off 1/2 a point or so if it's in an LLC.
What type of deals ,and where, are you finding in Houston?
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Peter Tverdov 9.5% and 2% sounds very affordable... sounds like you got a good deal. When you say they are god awful, I assume you're saying the lending company didn't meet your standards of business professionalism, or something like that?
@Daniel J Dominguez Yeah, Houston is an interesting city. Never skyrockets in price (like a bubble) and never crashes through the floor. I've been looking at deals almost weekly for the last 6 months, so I'm not sure what you mean that there is a shortage of good deals.You mentioned MLS, and I assume you mean it's hard to find deals on the MLS. That may be true. The deals I'm being sent are not on the MLS... they are coming from developers and wholesalers who I personally know.
@Steve Bergeron Thanks for sharing a few of your details. Buuuut, I'm confused. 200k at 1% per month is a monthly payment to the lender of $200. After six month, that would be $1,200 paid in interest. How did the lender get up to "12k on top of his investment", if you don't mind sharing.
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Odie Ayaga You clearly have a ton of experience with this... I really appreciate your thoughts and insights. You've given several interesting concepts to think about and consider working into my lending model.
@Effram Barrett I'm hearing similar that you're hearing for Houston... and Austin, actually. To answer your other question, I've been giving construction loans on fix and flips for the last year and the deals come to me from developers and wholesalers who are part of my personal network. Currently, I'm looking to do deals in Austin (where I actually live) and scale beyond my personal friends and family.
Developer · Member since 2020 · 13 posts · 6 votes
6y
@Nigel Prentice
That’s not the math we came up with. 200K X1% is 2000 dollars so 6 months he made 12k on his investment.
He structured it this way cause it’s easy to figure . Every 100k it’s 1 grand per month interest which makes it 12% per year . And I think it’s a fair rate as I don’t plan on going over a year to pay back any investments on my builds.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
@Nigel Prentice glad to hear it. I wouldn't say I have a ton of experience I've just experienced it from a number of the different angles involved so it helps because it makes it easier to think about it both from a borrower's point of view and a lender's point of view. I think the key to real estate success in any field boils down to figuring out how to solve the other party's problems.
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
6y
@Nigel Prentice, every market is different. I'm up in the Wisconsin market. In Milwaukee, Hard money is commonly at 15% and 5 points; sometime higher. In the Green Bay & Appleton markets, it's 12% and 3 points. Each market will price itself to the max that the market will bear. Most of my borrowers who have transitioned over to private money are typically paying 10% (or less) and no points. I know a lot of guys down in the Atlanta market who are getting their funds at 8% and no points.
There are several national lenders like Lending Home that start their HM at 6.99% and 1 point. They are backed by large hedge funds who will accept a low rate to keep their money busy. But, there are some big disadvantages to their clients who use them. When everything goes well, as you would expect, no issues. But, when things go sideways, watch out. It's all about the numbers and there's no flexibility.
An advantage to being a local HM guy is that we get to know the borrower and help them out. If things do go wrong, we can work out a solution. There's huge value in being their financial partner as opposed to just lending them money. You may need to educate them on the value that you bring, but you'll find that the people who truly understand the difference between the cost of something and making a little less from the deal will use you exclusively and you'll both make more money.
The bottom line answer is that you may want to go to the REIA's and pretend to be a borrower so you can see what others are lending money at in your markets.