Current Hard Money Lending Rates? (Jan 2020)

Private Lending & Conventional Mortgage Advice

Current Hard Money Lending Rates? (Jan 2020)

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.

Thanks a lot,

Nigel

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Don ScottPro Member

Investor · Houston, TX · Member since 2016 · 60 posts · 100 votes

@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.

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James Williams
New to Real Estate · Charlotte, NC · Member since 2019 · 73 posts · 46 votes
6y
@Steve Bergeron those are pretty decent terms.
0 Reply
James Williams
New to Real Estate · Charlotte, NC · Member since 2019 · 73 posts · 46 votes
6y
@Nigel Prentice I actually learned a lot from the back and forth on this post. This was some great insight from different perspectives and different regions of the country. Thank you for posting.
2 Reply
Nigel Prentice
OP
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Steve Bergeron My fault, you're exactly right on the math. My bad, I misread your post, and made the error twice. Good job by you on that deal.
0 Reply
Darrin Taylor
Rental Property Investor · Windsor, CO · Member since 2018 · 26 posts · 21 votes
6y
In Green Bay, it's 12% + 3 points.
0 Reply
Bryan Devitt
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
6y
2 points, 9% and $200 for each draw check is what a friend just got for his first deal. Looks like they're coming down quick
0 Reply
Oleg Enik
Investor · Culver City, CA · Member since 2019 · 98 posts · 28 votes
6y
@Nigel Prentice, It looks like you got a lot of great advice here. I'm currently working at a mortgage fund in Torrance, CA. The fund is composed of investors who put their money into the fund. And that money is used to lend hard money to certain individuals who are doing fix & flips, who have bad credit, etc. So essentially, the fund is a private and hard money lender at the same time. Although, our CEO jokingly says that we are actually a "soft money" lender since our interest rates are lower than other hard money lenders in the area.
From the short time I have worked there, I learned that the LTV(loan to value) matters a lot. The CEO of the fund rarely will take on a deal that has an LTV higher than 65%. And that is because any deal that has an LTV higher than 65% is riskier. Let's say we give out a loan with an 80% LTV, the borrower stops paying, NOD occurs, and the title to the property transfers to us, there won't be a lot of equity in that property since the LTV is so high. So it would be much harder to sell and many problems may occur. However, the lower the LTV, the less risk the fund is taking on.
So to finally to answer your question. If the LTV is below 65%, we usually charge anywhere between 7.99%-8.99% with 1-2 points. But it all depends on the deal. Hope this helped!
1 Reply
Odie Ayaga
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
Another good point from @Oleg Enik. It's fairly easy to find 70-75% LTV for a newbie from an HML. Most borrowers tend to try to get as high an LTV as they can, but I have come across some that will actually ask for less in the interest of better terms.
2 Reply
Noah Swank
Investor · Wichita, KS · Member since 2014 · 47 posts · 15 votes
6y
@Nigel Prentice
We have people just looking for retirement income. Often we pay 6–7% but do it for 3 years or more. They don’t want the principle back but the income, which makes it a lot less work for them and works for us a long term investor.
2 Reply
Alexcia White
Rosedale, NY · Member since 2016 · 120 posts · 24 votes
6y
@Don Scott
I would love to connect with you I am coming in that market area looking for lenders..
1 Reply
Nigel Prentice
OP
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Odie Ayaga Success in real estate is figuring out "how to solve the other person's problems." #instantclassic #thatsajewel

@Jeff Cichocki Great point about being the borrower's financial partner. This makes you essential to their success, which sets up a great foundation for a meaningful relationship. And wow, what a variance in rates. I'm glad I asked my original question because I'm seeing first hand how market dependent these things are. The fact that rates are market dependent is of course not new to me, but just how big the variances are is interesting. Thanks.

@James Williams Yeah man I agree with you. Honestly this has gotten way more traffic than I expected, and I'm here for that since I've gotten more than I asked for.

@Darrin Taylor Ok cool. Good to know.

@Bryan Devitt Now that's interesting. A $200 fee for every draw check. That feels like the lender is sneaking in a little extra revenue when the client needs their services the most. I guess the justification is that there is some administrative work (review permits, inspect the site, rerun credit) that the company must do and therefore they should be compensated for that fee. Do you have any details about that aspect of the fee structure for your friend?

@Oleg Enik Thanks for sharing insights from the industry that you are in full time. You're the first person to really answer with details about LTV (loan to value). The higher the LTV, the greater the risk. Also, I'm curious, how does your firm determine "Value?" Is it the after repair value of the property since you say most of your clients are fix and flips? And if it is ARV, whose numbers do you use? The clients' An independent appraiser? Your own due diligence? In the deals I've done so far as a lender, we've used comps from a realtor who works those specific neighborhoods. Thanks.

@Noah Swank You've added a whole new angle to this conversation, which I'm appreciative of. I looked through your Petra website and I see your point. Your company essentially acts as a fund manager of sorts. Your clients are the high net worth individuals looking for stable returns on their capital. You aggregate their funds then turn around and invest in real estate. So on the revenue side, is Petra the buyer in the real estate transaction? If so, Petra becomes the buy and hold landlord of lots of commercial properties, then pays its clients' back from the operational income from these properties. Is that right? I know this is off topic from my original post, but this has really piqued my curiosity! Thanks a lot.
1 Reply
Bryan Devitt
Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
6y
Originally posted by @Nigel Prentice:
@Bryan Devitt Now that's interesting. A $200 fee for every draw check. That feels like the lender is sneaking in a little extra revenue when the client needs their services the most. I guess the justification is that there is some administrative work (review permits, inspect the site, rerun credit) that the company must do and therefore they should be compensated for that fee. Do you have any details about that aspect of the fee structure for your friend?

There is definitely some costs on their part for admin and a site inspection, but I think this is more of a way to control the GC. The draws are tied to mile stones, so they don't want to cut a check every time you complete something worth a couple grand and would rather cut a check for five figures at a time. It definitely works because the GC is drawing himself down to nothing before he requests an inspection to keep the amount of draws to a minimum.

0 Reply
Noah Swank
Investor · Wichita, KS · Member since 2014 · 47 posts · 15 votes
6y
@Nigel Prentice
You got it Nigel, happy to talk further on a call sometime if you want to brainstorm further.
0 Reply
Nigel Prentice
OP
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
I appreciate the offer @Noah Swank. Very cool business model! And it certainly would be interesting to chat with someone of your experience. I have tons of years managing divisions at fortune 500 companies (and a few startups), but I'm new to real estate financing. I'll reach out directly and see if we can setup a short call, if you don't mind.
0 Reply
Noah Swank
Investor · Wichita, KS · Member since 2014 · 47 posts · 15 votes
6y
@Nigel Prentice
Look forward to it, talk soon.
0 Reply
Odie Ayaga
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
@Nigel Prentice I would say a few for draws is unusual in lending. Most hard money lenders don't have them. The borrower will have to pay for the inspector to come out, but not much work on the admin end.
0 Reply
Nigel Prentice
OP
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Odie Ayaga That's what I thought, which is why I was surprised to hear about that fee.
0 Reply
Jeff CichockiBusiness Member
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
6y
@Darrin Taylor, yes. Green Bay is 12% & 3 points. Our market is small and not as competitive. There's a pretty significant demand in the area too. We use private investors exclusively for our Flip & BRRRR loans. We don't use any institutional money for these loans. Because everything is private, we play a lot of Tetris with our investors to match them up with the right deals. We keep our investors funds very busy.
Let me know if I can help in any other ways.
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Whitney HuttenPro Member
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Nigel Prentice when I started out, I was paying 12% and 2.5 pts for 90% of the purchase and 100% of the rehab which for the lenders I work with is what they offer today. However, as I've built a track record, I've been able to negotiate rates to my advantage and now pay ~8% and 2pts. The other trick is, you can partner up with someone who has a track record to take advantage of their loan rate :)
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Daniel J Dominguez
Investor · Houston, TX · Member since 2017 · 71 posts · 38 votes
6y
Correct, i meant more along the lines of the MLS towards investors and homeowners. As for off market, ive seen some good ones, of course theres always more bad/on the border than there are good but that comes with the territory right. The truth is that it takes work to find and analyze the influx of properties that make up Houston. Ive spent a lot of time analyzing and really like to find properties and run the numbers for myself. so any deals i find that i make sure to tailor it to the investor/homeowner's COC and ROI and if it not then i dont even waste their time. If i bring an deal ive run the numbers forwards and backwards. You mentioned your looking to fund deals in Houston or your looking to purchase deals in Houston? @Nigel Prentice
0 Reply
Andrew Bang
Lender · Texas; Arizona · Member since 2019 · 276 posts · 282 votes
6y
When comparing Hard money loans, Most of the time investors focus on interest and don’t realize the true costs of points and fees. You need to look at total cost of the loan, taking into account the total interest, points, fees, minimum interest due, appraisals, inspections, etc.

Example A: I lend at 12% and 1 point in Houston and Austin. No other fees, no appraisal, no rehab draw fees or inspection. No credit check.

Example B: A national lender is at 7.99% and 3 points, $500 doc fee, appraisal, $200 for each rehab draw.

The average flip takes 130 days. Let’s use $100,000 as the loan amount.

Example A:

$1,000.00 loan origination, $4274.00 interest for 130 days. 1000+4274 = $5274 total paid to lender.

Example B:

$3,0000 loan origination, $2814.00 interest for 130 days, $500.00 doc fee, $500 for appraisal, $1000.00 rehab draw fees (5 draws @ $200 each). 3000+2814+500+500+1000 = $7,814 total paid to lender.

$7814 vs $5274, easy choice.

That’s why I tell investors 12/1 is the better loan for a flip if there isn’t a pre payment penalty or minimum interest due. Sure I’ll do a 10/2, 8/3, 6/4, 4/5, 2/6….but if the investor sells before 6 months, 12/1 was cheapest, just a numbers game.

I don’t see much difference between hard money rates in Houston and Austin (San Antonio and Dallas too), 9-12%, 2-4 points plus appraisals and rehab inspections. I see experienced investors paying these high costs because they have developed trust and are familiar with those lenders process. It’s the peace of mind of knowing a lender will come thru at closing and fund that is most important to them. As you network and gain a reputation that you fund your commitments, investors will be lining up to use your capital.
4 Reply
Oleg Enik
Investor · Culver City, CA · Member since 2019 · 98 posts · 28 votes
6y
@Nigel Prentice Well, actually in reality we don't do that many fix & flips for the same reason, it is way riskier compared to a situation when somebody needs a loan on a small rehab or some cosmetic work. But we do more "broken construction". So that when somebody is already in the process of rehabbing the property and runs out of money, but needs more to finish the rehab, they can come to us.
In terms of the value, we really try to focus on looking at the "as is value".
And lastly, in terms of appraisal, most of the time, we determine the value ourselves. We use comps from MLS, Zillow, Property Shark, Redfin, etc. As well, we have a guy working for us that does underwriting for us so he sends us some comps and estimates the value as well.
0 Reply
Jeff CichockiBusiness Member
Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
6y
@Andrew Bang, I wanted to say thank you for your post. You make some very good points. Most investors look at the obvious costs but not all of them. Great breakdown!
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Nate Marshall
Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 734 votes
6y
We are putting our term sheet out in mid February. We will have a much lower rate for our Members but look to be 10-12% with 3 points for non members. This is for SFH flips. We have a different program for rentals. We also are doing multi family, new construction, assisted living and self storage. I'm curious to see what other lenders are doing.
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Nigel Prentice
OP
Austin, TX · Member since 2014 · 26 posts · 12 votes
6y
@Daniel J Dominguez I'm open to lending on deals and doing my own.

@Andrew Bang Wow. it looks like you just wrote the book on hard money lending. It doesn't get any clearer than that! Thanks so much for taking the time to share your experience and thoughts.
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