what kind of return does hard money lenders expect

Question

I have been investing 85k to 150k in reo properties and was wondering if there are any hard money lenders out there that would be interested in a 50% equity split on a flip or buy and hold for 2 or 3 yrs.

Charles Whitaker · Answer

Douglas,

In most instances a profit split will leave you less on the table then when using a HML. Suppose you purchase a 50K house with a HML, with points and interest it comes out to 12% interest overall(6K) and you make a 15K profit. Now, suppose you borrow the money from a friend and they get half of the new expected profit = (15Kprofit+6K saved = 21K split two ways)
Using the friend in this case made you lose 4.5K profit. This is not always the case, however, quite often more profit can be realized by not doing a profit split. Each case must be weighed carefully.

Douglas Christian · Answer

Why go hard when you can go soft.

What do I mean.  Here is what I mean.  Find a family member or friend or partner and split the profits.

You found the deal, they put up the money.  We must begin to think outside of the box.

Number 1 resource for financing our deals is usually right under our noses and we fail to ask.

Craig Osterloh · Answer

Large deals (1 million +) are usually 16 to 18% plus 4 to 6 points on a 6 month note.  I have seen as low as 14% and 4, but that has to be a great deal (60% ltv or less) with lots of backup (your house, your wife, your kids).

Although I've never done any small deals, the one's I have heard about have been scary.  4% per month + 6 points.  Of course that was back in the days of the "get rich quick" rush.

Tony Tomasek · Answer

Do NOT, I repeat Do NOT sign on for a deal with a hard money lender that has a pre payment penalty.  This is ridiculous and many are out there that don't charge this fee.  Prices for hard money are going up it seems.  I am seeing 18% per annum and 8 points up front at present.  Also I have found several really good deals from forclosed loans , so that is true.

Jason F · Answer

Tony, I think this is just the beginning of money becoming more expensive.

The tightening of the credit market will continue to make money very hard to get.

Nechelle Vanias · Answer

You are describing a partner not a hard money lender.  I would suggest networking at local real estate investor clubs to find money partners with whom you can share some of the financial burdens of your investments.  If you are buying, fixing and selling you should consider a hard money lender as they will give you the cash to make the purchase and do the fix up which will allow you not to tie up your own cash.

Barbara Grassey · Answer

Hard money lenders are just that -- lenders.  Depending on the area, they want 2 - 5 points plus anywhere from 12 - 18 percent interest.  Payments are usually interest only.  Most hard money lenders have a 3 month prepayment penalty and will loan for a year or two.

In areas with a lot of foreclosures, many hard money lenders ended up foreclosing on properties.  They may be a good source of houses for you to buy.  Like traditional lenders, they are in the business of lending money, not fixing, holding and renting properties.

Barbara

Michael LeClerc · Answer

From what I have found hard money people want a couple points down, and interest above 12%. sometimes 6 months before payments are due.