How to find market rates for hard money

Question

I'm about to have some cash that I plan to be lending out as hard money, this isn't something I've done much in the past and was curious if there was a good resource for finding what a "market" rate is for hard money both secured and unsecured at any given time. Any help would be appreciated.

Jeff S. · Answer

First, be careful of the solicitations you will receive, @Trae Robrock, now that you announced you have money to lend and no experience.  I notice some of them were already deleted here.   You don’t want to loan money to out-of-town strangers who solicit you over the web.  There’s no opportunity to meet them or see their properties.  Nor do you want to do business with anyone who would jump ship from any lender over a point or a percent. Ignore those PMs.

Many of the larger syndicated hard money lenders are killing themselves now in their race to the bottom, charging 6.99% to 8% and dropping, plus some points and a ton of fees.  Since their investors, typically Wall Street, haven’t a clue about private lending, they have to structure their originations like conventional loans to obtain investor money.

These lenders often require credit checks, appraisals (sometimes multiple), tax returns, bank statements, and healthy down payments.  It can sometimes take weeks to close a loan and if a project is delayed, they hammer their borrowers with fees and penalties.  Cutting someone a break is rarely in their vocabulary. These are often non-starters for active, professional flippers.  You can do better and charge for it. In fact, in my opinion, you asked the wrong question, Trae.

Lending is about relationships and, like most businesses, about competitive advantages. If you want to rent a commodity (money) and compete on market rates alone, you can join the race noted above.   Good luck to you.  Instead, you should be asking what competitive advantages (i.e. value) you can offer to maximize your returns.  Here, you must know your market and who you want to lend to.  This will take some work.

I know some here might not believe it, but there are house flippers out there who are truly skilled at finding viable homes and who can build substantial inventories and monthly backlogs.  They hoard cash and often need as much money as they can obtain and want to minimize their loan payments to put toward their flips.  They are aggressive in their offers, requiring extremely fast reliable closings.  Emotional or not, they hate junk fees and don’t want to worry about unreasonable lenders who flip out and overcharge if a project needs more time.  They always need more time.  I could go on, but this is a narrow snapshot of needs you can think about where to add value.  There’s lots more.

It’s up to you to decide the type of borrower that makes you comfortable and how to satisfy their needs.  For example, we only loan to experienced house flippers but there is a huge market lending to newbies.  Too risky for me, but many lenders will loan to them at a premium.  Ditto lending out-of-state or even out-of-town.  It appears you’re located in San Jose.  I know there are enough viable homes in the area to keep you loaned out making relatively safe, 1st position, secured,
loans only.  Rates and terms are always regional. With attractive terms, there’s no reason to be the cheapest money in town. Those are not the borrowers you want anyway.

I published our lending process here a few years ago in this thread and it’s still 95% accurate for us. Step-by-step, it should be actionable enough for you to get started.  You should also read what I add to this post for an idea of the minimum paperwork involved in a real estate loan in addition to the note and deed of trust.

Good luck to you, Trae.

Marc Rice · Answer

@Trae Robrock

Unsure if you could use the LIBOR + %. Most HML are 8-12% form what I’ve seen with first lien position

Account Closed · Answer

@Trae Robrock Most institutional hard money lenders are lending at 8-10% and charging 1-2 pts for origination fees. Their cost of capital is cheaper though since they're well funded. Many private money lenders charge in the 10-12 range and charge between 0-2 pts.

As some members posted earlier, a lot of investors prefer to tag up with an established hard money lender to invest in their fund rather than lend on individual projects to protect their downside. In any case, make sure everything is well-documented before lending any of your money!

Jerel Ehlert · Answer

If not already mentioned, go to some of the larger networking events in REI groups.  Most will have one or more HMLs as sponsors who readily publish their rates.  You can also do the same by going to a website, but you find lots of noise/trash sites.

Your biggest variance is going to be in the rest of the loan terms.

BTW, networking events is also where you will find borrowers.  Sure, you could post your own website, but you get lumped into the same category of noise/trash.

Trae Robrock · Answer

Thanks for the thoughtful reply @Jeff S. luckily I'm not new to loaning money, just haven't done it in this space yet (most of mine has been in tech startups). This helped a lot.

Trae Robrock · Answer

@Michael Kinsella Thanks! That's a great idea.

Michael Kinsella · Answer

Hi @Trae Robrock,

You can use the 'Network' tab --> Hard Money Lenders and speak with some of them to see what their current terms are on the types of deals you're pursuing. Most of the time, you can just ask them to send you their financing guidelines, and those will give you an idea of the interest rates.

Best,

Michael

Derek Williams · Answer

@Ashley Goane  I agree with you. This can be a very lucrative space that far outperforms bank interest rates and most market indexes. Be smart, ask a lot of questions and research extensively the projects you decide to fund. Asking for a business plan/detailed budget/etc. is always a good idea and will give you some insights about the individual(s) you are lending to. Best wishes and much success!

Ashley G. · Answer

@Derek Williams Thanks for your input. Its something i'm definitely going to research in more detail.

I think like most people i dont want my money sat in a bank not working for me. becoming a private lender and diving into real estate acquisitions is something that Im actively pursuing.

Thanks again

Derek Williams · Answer

@Ashley Goane 8% unsecured hard money loan (for 100% of purchase price plus rehab) with no points upfront is a steal! If you are going to be on the low end of the interest rate spectrum I would only do the deal if you get 3 points on top of the 8%. Also important to put a timeline on the loan with penalties if the home sits on the market post-rehab for an extended period of time. Hope this helps…

How to find market rates for hard money

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