Private Loan Questions

3 Replies

Hello BP,

I recently found someone that is willing to loan on my first BRRRR deal. It's both our first time, me using private money and him lending. To keep it simple, let's just say I am asking for 100k loan (purchase price of property) and giving him 10% interest on his money. I am anticipating no more then a 6 month rehab time (which I am using my own money for rehab costs).

Is it a simple 10% on the 100k when paying back the loan? So I essentially am giving him 10k + original 100k? Or does it depend on the term of the loan? If we agree to a 12 month loan but I can refi and give him the full loan amount in 6 months, do I only pay the interest amount for 6 months?

I am not sure if I am confusing myself and combining two different ways to stucture a private loan or what, but I would appreciate any help or advice on how I should structure the private loan.

Thank you in advance. 

We have done a couple small loans with a local investor. The first was $14,000 at 12% interest only and the second was $20,000 at 10% interest only. The first was paid in 12 monthly payments of $1,307, which was painful. We asked that the second loan be interest only payments for 9 months which made our monthly payments $245, which is much less painful. If we paid either off early the investor would still have gotten their full interest percentage ($1,680 on the first and $2,000 on the second). There is also the option to pay everything at the end of the loan, or early if needed, so in your case the $110K would be payable when you are done with the loan or at 12 months which ever came first. Hope that helps.