Hello fellow BP friends!
This evening I just came across a buy-and-hold opportunity that would yield a 10% cash on cash ROI. I used the BP calculator and my knowledge of the local area to decipher the details of the deal. Now i want to approach a friend of mine who has expressed interest in funding a deal.
I'm completely new to the game and know very little about approaching a private lender, and what specifics they are going to be interested in (besides an attractive ROI).
What are typical lending terms of this nature? How soon do private lenders expect to be paid in full (plus their appropriated ROI %), or is that something that is completely negotiable? I tried searching this topic in the forums/blogs but couldn't locate this specific topic so i decided to start a new discussion.
Thanks very much in advance for your insight you can offer here.
PS: here's a link to my analysis, in case anyone is interested in checking out what i've found/drawn up...
when I hear private lender I think of friend, uncle who will lend for 10%.
For hard money lender; reputable, there are many good ones..look on site, send them your deal.. 12% plus points., .. lots of flexibility...all roughly same parameters. Send them the deal. For approval .get their terms ..
It is all a discussion. Talk with your friend. Find out what kind of terms he/she is looking for. Do they want 8% for 5 years and a balloon? 10% and some points? When you get an idea of what they want, you can then let them know about your deal and show them that at their terms you can pay them and still make a little money.
Their whole concern is that they will make the interest that you say you are going to pay them and that you are going to pay them back the principal also. The longer the term will be better for you. You have to have an end game in mind also. Since you want to hold this property, make sure that they are willing to hold the note for at least 3-5 years. If they only want to finance for a year, they are not the ones to do this deal for you. All you have to do is ask.
10% COC doesn't leave much room for you. If the deal has a lot of upside, you may need to give him the entire 10% for the first year, or until you can refinance out to pay him back. This would be a good "first date" before he goes "all the way" on a second date. If he is that kind of friend.
@Matt Berklacy thanks man, yes this would be a good friend of mine who has expressed interested in getting into investing but he doesn't want to do any legwork.
@Rick Pozos I'm going to call up my buddy and see if he even has any idea of what kind of terms he would be interested in. Odds are, this would be his first time investing into something like this as well...
@Anthony Dooley : Thank you for your feedback! Certainly gives me a lot to think about still. You mention "if the deal has a lot of upside", what do you mean by that exactly?
@Dustin Oien Meaning, if you can increase the value over a year or two, you can refinance with a traditional loan and pay back your investor and even have some money leftover for yourself. This would mean you have no money in the deal, but it cash flows well. I don't know if this is a SFR or a multi-family deal. SFR will be harder to increase the value, therefore not as much upside.
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