If I loan Hard Money, what Returns are Acceptable? Outstanding?

Question

For simplicity sake, say I loan 10,000 to a borrower.

What total return should I expect, realistic and Best Case?

And what term lengths?

What have you experienced?

Billie Jo · Answer

They are talking about lien position... as in if the borrowers stop making payments, who gets put in first place for claims. If the lender gets first position then typically they have the first loan on the property. Second position is not as good and considered a little more risky if there is not as much equity in the property.

David Faulkner · Answer

Stephen, is this the strategy of the week for you? First it was house hacking a 4-plex, then notes, now hard money loans ... all in a few weeks time, maybe I missed a few LOL. I appreciate that you are new and trying to learn, but you really are better off picking 1 strategy and doing a deep dive rather than 15 strategies, learning a little bit about each of them, all adding up to nothing. A $10k hard money loan in SoCal will not get you very far ... even a $100k loan won't get you far. HML out of state for a newbie is financial suicide IMO. Only other altenative is you would need to put it with an investor group like Norris group and go in on a fractionalized loan, which I don't like ... I want to own and control the full note. As others have mentioned, 10% is normal for a 1st lien HML ... you can originate a small few (forget the number) on your own as a private lender (with no points), and 10% is the most you can charge in this case or else it is usary and illegal, or you can use a licensed mortgage guy to originate and possibly charge more ... in that case the mortgage guy keeps the points and you keep the interest. Again, though, $10k is not going to cut it ...

Richard W. · Answer

In first position, I currently seek a minimum of 10% APR, and I always ask for a Personal Guarantee. 1 year term, principal+interest to be payed at the sale of the property. I have had  a couple loans go over the initial one year term (On 7-9 month initial projections). One worked out fine, one had a palatable extended work out.

Jonathan Marcus · Answer

I paid my investor 10%, 1 year term, second position.

Find out what the usury laws is in your state to make sure you won't be breaking it, if you will be asking for a lot higher interest. Also, something to think about if you plan on doing this as a business is what other hard money/private money lenders are getting. Visit your local REIA to get a better idea.

Mindy Jensen · Answer

I charge 10%, no points, borrower pays closing costs, first position lien on the property. I only lend to people I know, who I consider to be as close to a 0% risk as you can possibly get.

Another lender that I know from BiggerPockets charges 12-14% plus 3-6 points. His lending terms are less stringent than mine, but he's also taking on more risk for the added return.

@Jonathan Marcus  made an excellent point - make sure you know the usury laws in your area so you don't run afoul of them.

Gary Headrick · Answer

I have done loans from 10-14%, first position only, no points, borrower pays all closing costs with a personal guarantee. Max LTV of 65%. Term will run from 1-5 yrs. but getting old so, targeting 3 yrs. for a term. Investor only loans - no borrower occupied but Dodd Frank may change or so we hope. I  would be called a private investor vs. hard money. Hard money terms would be similar except they would want points and may do seconds at a higher rate.

Tyler Sterns · Answer

It's really dependent on your market. I typically see 12-15% with 3-5 points. Borrower pays all closing costs, attorneys fees, appraisals etc. Duration tends to be short anywhere from 6 months to 2 years. But you could be in a completely different area.

Don Konipol · Answer

We just lowered our rates to 12% with 3 points on loans of $1M, and 12.75% and 4 points for loans under $1M

If I loan Hard Money, what Returns are Acceptable? Outstanding?

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