Hello everyone! I'm curious to see what people think is a good ROI for a deal that is funded 100% by a private lender. Does anyone have a little insight on this?
Hey @Cody Ringler ! Are you asking about what a good ROI for you (the deal maker) or the private lender (the deal funder) is?
Deal-funder: What it really comes down to is what could that person be getting elsewhere with a similar risk level? I usually give my funding partners a VERY good ROI on the first few deals we do together and let them know up front that it will eventually move down as we operate faster and at a lower cost based on earned trust. So, if you are a new flipper or a first-time BRRRR-er then you might self-assess the deal to be higher risk than something like FundRise and therefore offer your deal-funder a slight markup on the rates that something like that is offering. To counterbalance that you'll want to evaluate your own BATANA - where would you get the money if not from that private lender? What would that cost? If you evaluate that and pass on some of the savings you'll achieve through the private money (origination, underwriting costs, and so on), then you can pass some of that savings on to the private lender and you'll both be winning well.
Deal-maker: that would totally depend on your internal numbers. I typically make a slightly better ROI with private lenders (for the previously mentioned reason of low or no lender fees), but not drastically because I want it to be a win for all parties.
I usually pay my lenders about 10% and a point. These are friends who know that I have done plenty of rehabs. It will depend how many deals you have done successfully.