Ways that a PML Gets Paid

[Yan Garcia]

I'm a bit confused on how a PML gets paid. I understand they get paid by interest payments but it seems to be a slow return. A $20k loan, 30 months, 9% is coming at ~$2400 in interest. That won't be appealing to my money partner. I'd like to ask about a % split. If a rental cash flows at $800/month for example, and split is 50/50, I would assume the PML gets $400 a month. Is this how the % split works with PMLs? How do you guys structure the deal so that it's attractive to a PML?

[Paul K.]

@Yan Garcia

Almost all private and hard money lenders will require interest rates between 11-16% (11-14 is more typical) and points up front in the range of 2-5. This is different than a residential mortgage where you can use points to buy down the rate

If the loan is $100k you would pay the borrower 3pts ($3k) and then make monthly interest payments of $1k (assuming 12% interest only rate)

The longer the loan the fewer points up front.. say a loan over 2yrs may only have 2-3pts where a 6 month loan may have 3-5pts