Is 12% Enough to Attract Private Lenders? How Did You Find Yours?
New York, NY · Member since 2014 · 146 posts · 16 votes
Is 12% Enough to Attract Private Lenders? How Did You Find Yours?
Most Popular Reply
Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votesThe issue you will run into is the collateral is lousy. A good lender is going to ask themselves what happens if we have to take back the property? There’s no conservative leverage that makes the collateral you describe safe.
21 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2moPrivate lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.
7e investments53 Reviews- New York, NY · Member since 2014 · 146 posts · 16 votes2mo
Quote from @Chris Seveney:
Private lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.Great question. Not syndicating, just one lender per deal.
The primary exit would either be interest only and year 5 a balloon payoff or 5 years of principal and interest amortized over 5 years.
This would be through cash flow, refinance, note sale, or financing against seasoned notes. I'm still learning what private lenders are most comfortable with, which is why I'm asking.
For those lending in this space, what exit strategy gives you the most confidence?
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2mo
Quote from @Steve Candor:
Quote from @Chris Seveney:
Private lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.Great question. Not syndicating, just one lender per deal.
The primary exit would either be interest only and year 5 a balloon payoff or 5 years of principal and interest amortized over 5 years.
This would be through cash flow, refinance, note sale, or financing against seasoned notes. I'm still learning what private lenders are most comfortable with, which is why I'm asking.
For those lending in this space, what exit strategy gives you the most confidence?
The investors are going to want a ihigher interest rate than you are probably allowed to give the borrowers so you would be losing money every month, better off just selling the property straight sale without seller financing.
7e investments53 Reviews - 2moJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Chris Seveney:
Quote from @Steve Candor:
Quote from @Chris Seveney:
Private lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.Great question. Not syndicating, just one lender per deal.
The primary exit would either be interest only and year 5 a balloon payoff or 5 years of principal and interest amortized over 5 years.
This would be through cash flow, refinance, note sale, or financing against seasoned notes. I'm still learning what private lenders are most comfortable with, which is why I'm asking.
For those lending in this space, what exit strategy gives you the most confidence?
The investors are going to want a ihigher interest rate than you are probably allowed to give the borrowers so you would be losing money every month, better off just selling the property straight sale without seller financing.
the other issues is private lenders generally and all lenders will have due on sale clauses so you have to negotiate that up front.. And many wont want you letting someone they did not lend to take title and you take a second back or wrap your note.. this precludes your lender from being able to do a DIL and forces them into a full blown foreclosure if they have to take the asset back.. Now you might find lenders that dont know what they are doing and their docs are not written to protect them but many off the shelf mortgage or deed of trust docs have the alienation clause as a standard feature..
So this is where lease option comes into play @Shiloh Lundahl has done many of these maybe as many as a hundred Plus if you can get his attention he would be a good resource for you. - New York, NY · Member since 2014 · 146 posts · 16 votes2mo
Quote from @Chris Seveney:
Quote from @Steve Candor:
Quote from @Chris Seveney:
Private lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.Great question. Not syndicating, just one lender per deal.
The primary exit would either be interest only and year 5 a balloon payoff or 5 years of principal and interest amortized over 5 years.
This would be through cash flow, refinance, note sale, or financing against seasoned notes. I'm still learning what private lenders are most comfortable with, which is why I'm asking.
For those lending in this space, what exit strategy gives you the most confidence?
The investors are going to want a ihigher interest rate than you are probably allowed to give the borrowers so you would be losing money every month, better off just selling the property straight sale without seller financing.
That is fine and works out for me. Im actually expecting their interest rate to be higher than the interest rate I give to my buyer. I can make it work 100%. I give my buyer 10%-11% interest say at $80k and I want to pay out 11%-14%, ideally 12% on a 30k purchase. So for this example, Im getting $735 from the buyer and paying out $325 in interest to the private financer.
I just dont know how to find anyone that will take it and allow me to pay them that. Any ideas?
- New York, NY · Member since 2014 · 146 posts · 16 votes2moIts a contract for deed or land contract. I am holding the title and in state records Im the only one on the deed and only record of it being sold. The only document that exist that its owner financed is between myself and the "renters".
Quote from @Jay Hinrichs:
Quote from @Chris Seveney:
Quote from @Steve Candor:
Quote from @Chris Seveney:
Private lenders you can find 12% but their loans are typically short term in nature. What is your exit to pay them back? I assume you are asking for one lender per deal and not trying to syndicate - if trying to syndicate that opens up a completely different conversation.Great question. Not syndicating, just one lender per deal.
The primary exit would either be interest only and year 5 a balloon payoff or 5 years of principal and interest amortized over 5 years.
This would be through cash flow, refinance, note sale, or financing against seasoned notes. I'm still learning what private lenders are most comfortable with, which is why I'm asking.
For those lending in this space, what exit strategy gives you the most confidence?
The investors are going to want a ihigher interest rate than you are probably allowed to give the borrowers so you would be losing money every month, better off just selling the property straight sale without seller financing.
the other issues is private lenders generally and all lenders will have due on sale clauses so you have to negotiate that up front.. And many wont want you letting someone they did not lend to take title and you take a second back or wrap your note.. this precludes your lender from being able to do a DIL and forces them into a full blown foreclosure if they have to take the asset back.. Now you might find lenders that dont know what they are doing and their docs are not written to protect them but many off the shelf mortgage or deed of trust docs have the alienation clause as a standard feature..
So this is where lease option comes into play @Shiloh Lundahl has done many of these maybe as many as a hundred Plus if you can get his attention he would be a good resource for you. - 2moShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
@Jay Hinrichs Thanks for the shout out. @Steve Candor I'm not going to say your model won't work. I haven't tried it exactly as you are describing it. But I will say that there are some concerns with it. Here are the concerns.
1. The product - As @Stuart Udis mentioned, the $20,000 to $60,000 price point can be an issue for a few reasons. Usually the houses selling at those price points are in less desirable neighborhoods and they attract less responsible tenants that may damage the property and stop paying. This may lead you to need to evict them and then spend a lot of money to get the property ready for the next tenant. This would eat up all the cash flow and the property would probably have a negative cash flow. some landlords can make money in C-, or D neighborhoods, but that is because they specialize it, they are close to the properties, and they are somewhat scary. I have a buddy that does this, and that would be how I would describe him. He is the kind of guy that would show up at the hospital room of a tenant and say "Hey, rent's due. You got to f***ing pay your rent or I'm going to f***ing evict you. You got 3 days. Oh and by the way, hopefully you get better." So if that doesn't describe you, then homes at that price point may not be a great fit for you.2. The Seller Financing - I believe in several states, the general rule is you can only create up to 3 seller financing deals within a 12-month period without being a mortgage loan originator. There are caveats to that that you will need to understand well in order to stay in compliance with the federal SAFE Act. Additionally, there is a ceiling to the interest rate that you can charge in some of those states. So make sure you well informed before you create loans what you can and can't do. Also, with seller financing, you have to go through the foreclosure process and then the eviction process which may take a lot of time and can be very costly.
3. Location - You mentioned 6 states that you are interested in investing in. That is fine, but I would encourage you to just start out with one first. Laws are different in different states and you don't want to have 1 property in 6 different states and have to learn all the laws of each different state all at the same time. I would encourage you to start with one state, build a portfolio there, and learn the laws regarding renting residential real estate in one state first. Then you can add an additional state and so forth.
As Jay mentioned, I use the lease option model. And I like it better than the seller-financing model in many ways. First, I maintain ownership which means I still benefit from depreciation and the income received has better tax advantages. Also, because I maintain ownership, I don't have to foreclose if the tenant stops paying, I can just evict them. Secondly, my tenants pay me an option fee upfront. This helps sift out people who can't come up with $5,000 to $8,000 to move so I usually get a more resourceful tenant that has a better capability to pay rent. The option fee is also hepful if I need to put money into the property to to get for new tenants. As far as financing goes, I usually buy these properties with DSCR loans and then I may get a second position note to leverage the properties to 80% if I don't want to leave any money in the deal and I pay 10% - 12% to private money lenders on these second position notes. This helps me scale, but it also makes the cash flow go down, so you have to be careful and have other money coming in that will cover your daily living expenses.
Following this strategy helped me build a portfolio of over 100 single family homes a few years back. I use this strategy a lot today still and I love. I get paid better and I help people become home owners.
- New York, NY · Member since 2014 · 146 posts · 16 votes2mo
Quote from @Shiloh Lundahl:
@Jay Hinrichs Thanks for the shout out. @Steve Candor I'm not going to say your model won't work. I haven't tried it exactly as you are describing it. But I will say that there are some concerns with it. Here are the concerns.
1. The product - As @Stuart Udis mentioned, the $20,000 to $60,000 price point can be an issue for a few reasons. Usually the houses selling at those price points are in less desirable neighborhoods and they attract less responsible tenants that may damage the property and stop paying. This may lead you to need to evict them and then spend a lot of money to get the property ready for the next tenant. This would eat up all the cash flow and the property would probably have a negative cash flow. some landlords can make money in C-, or D neighborhoods, but that is because they specialize it, they are close to the properties, and they are somewhat scary. I have a buddy that does this, and that would be how I would describe him. He is the kind of guy that would show up at the hospital room of a tenant and say "Hey, rent's due. You got to f***ing pay your rent or I'm going to f***ing evict you. You got 3 days. Oh and by the way, hopefully you get better." So if that doesn't describe you, then homes at that price point may not be a great fit for you.2. The Seller Financing - I believe in several states, the general rule is you can only create up to 3 seller financing deals within a 12-month period without being a mortgage loan originator. There are caveats to that that you will need to understand well in order to stay in compliance with the federal SAFE Act. Additionally, there is a ceiling to the interest rate that you can charge in some of those states. So make sure you well informed before you create loans what you can and can't do. Also, with seller financing, you have to go through the foreclosure process and then the eviction process which may take a lot of time and can be very costly.
3. Location - You mentioned 6 states that you are interested in investing in. That is fine, but I would encourage you to just start out with one first. Laws are different in different states and you don't want to have 1 property in 6 different states and have to learn all the laws of each different state all at the same time. I would encourage you to start with one state, build a portfolio there, and learn the laws regarding renting residential real estate in one state first. Then you can add an additional state and so forth.
As Jay mentioned, I use the lease option model. And I like it better than the seller-financing model in many ways. First, I maintain ownership which means I still benefit from depreciation and the income received has better tax advantages. Also, because I maintain ownership, I don't have to foreclose if the tenant stops paying, I can just evict them. Secondly, my tenants pay me an option fee upfront. This helps sift out people who can't come up with $5,000 to $8,000 to move so I usually get a more resourceful tenant that has a better capability to pay rent. The option fee is also hepful if I need to put money into the property to to get for new tenants. As far as financing goes, I usually buy these properties with DSCR loans and then I may get a second position note to leverage the properties to 80% if I don't want to leave any money in the deal and I pay 10% - 12% to private money lenders on these second position notes. This helps me scale, but it also makes the cash flow go down, so you have to be careful and have other money coming in that will cover your daily living expenses.
Following this strategy helped me build a portfolio of over 100 single family homes a few years back. I use this strategy a lot today still and I love. I get paid better and I help people become home owners.
Thanks, this was very helpful. I think you're right that I should probably focus on fewer states initially. The laws around seller financing, foreclosures, contracts for deed, and compliance are all different, and there's a lot to learn.
My model is a little different than a rental, its called a Slow Flip. I buy a property, then resell it using owner financing/Contract for Deed. The buyer puts money down $3k-$5k, makes monthly payments, and is responsible for taxes, insurance, maintenance, and repairs. I still retain legal title until they're paid off.
One thing I like about the model is that it creates a note that can potentially be sold, refinanced, or borrowed against later to recycle capital.
The buyers tend to have more ownership mentality since they own the home rather than simply renting, although I'm sure there are challenges with both models.
I was particularly interested in your comment about using DSCR loans and second position notes. Do you think a DSCR lender would work with a property that has been sold on a Contract for Deed, or is that one of the reasons you prefer lease options? Also, do you know any lenders that might be open to this type of strategy?
- 2moRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Steve Candor:
I'm building a business buying affordable single-family homes ($20k-$60k) in middle america (OH, PA, Il, OK, IN, WV, etc) and reselling them with owner financing.
I recently completed my first deal and am now trying to figure out the capital side of the business. I am out of state and country now so I cant do any local meetups.
For those of you using private lenders:
Is 12% generally enough to attract lenders today?
Where did you find your first private lenders?
How difficult is it to find lenders when you're investing out of state?
I'm not looking to raise money through this post specifically. I'm just trying to learn from people who have successfully built relationships with private lenders and understand what actually works versus what sounds good in theory.
If you were starting from scratch today with no track record, where would you focus your efforts?
Should I be cold calling/texting owners on propstream? Ive tried but having no luck ...not sure if this is a dead end.
What exactly are you looking for - financing for the purchases of more properties? Or are you trying to refinance out of the owner-financing post-sale?
Harpoon Capital514 Reviews- New York, NY · Member since 2014 · 146 posts · 16 votes2moPrimarily acquisition financing. I'm looking for capital to purchase additional properties.
Quote from @Robin Simon:
Quote from @Steve Candor:
I'm building a business buying affordable single-family homes ($20k-$60k) in middle america (OH, PA, Il, OK, IN, WV, etc) and reselling them with owner financing.
I recently completed my first deal and am now trying to figure out the capital side of the business. I am out of state and country now so I cant do any local meetups.
For those of you using private lenders:
Is 12% generally enough to attract lenders today?
Where did you find your first private lenders?
How difficult is it to find lenders when you're investing out of state?
I'm not looking to raise money through this post specifically. I'm just trying to learn from people who have successfully built relationships with private lenders and understand what actually works versus what sounds good in theory.
If you were starting from scratch today with no track record, where would you focus your efforts?
Should I be cold calling/texting owners on propstream? Ive tried but having no luck ...not sure if this is a dead end.
What exactly are you looking for - financing for the purchases of more properties? Or are you trying to refinance out of the owner-financing post-sale?
I am trying to grow and own more single family homes and so is my team.
Longer term, maybe in 6-12 months I'm also interested in learning about refinancing seasoned deals, note backed financing, and note sales, but that's secondary to acquiring more properties right now.
- 2moStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
The issue you will run into is the collateral is lousy. A good lender is going to ask themselves what happens if we have to take back the property? There’s no conservative leverage that makes the collateral you describe safe.
- New York, NY · Member since 2014 · 146 posts · 16 votes2moThe property will appraise for the amount of the loan or they will at least be protected by a LTV of 70%-80%. Like if i buy a 40k property. Appraised at 40k. They give me a loan for 30k.
Quote from @Stuart Udis:
The issue you will run into is the collateral is lousy. A good lender is going to ask themselves what happens if we have to take back the property? There’s no conservative leverage that makes the collateral you describe safe.
Im not sure if it could help in anyway if I offer another property at say 500k that I can also use as collateral or personal guarantee i will make 100% of all payments. would any of this help?
- 2moStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Steve Candor You’re missing the point of the collateral issue. Even at 50% leverage a few cap ex events and you’re under water. The same issue doesn’t exist with higher priced real estate. The real estate you’re targeting is disproportionately impacted by nearly every cost.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2moWhere you are going to run into problems is with title and title insurance. Selling on a cfd with financing already in place with seller financing via cfd will still require it to be recorded and can be problematic. Some states actually don’t allow financing to remain If you do the financing after getting buyer in cfd then lender won’t be able to get title insurance. I am not sure you are gonna find private lenders for this strategy as at the end of the day the borrower on cfd typically has poor credit w Qualifications7e investments53 Reviews
- New York, NY · Member since 2014 · 146 posts · 16 votes2mo
Ahh, that's a fair point. I can definitely see how a $10k to $15k capital expense on a $40k property is a much bigger risk than the same expense on a $400k property.
That's actually what I was wondering. Since this will likely be a concern for many lenders, does additional collateral help?
For example, let's say I own a $500k property free and clear and want to acquire several $30k to $40k homes. If a lender provided a $300k line or loan secured by both the larger property and the acquired properties, would that materially change the risk profile from a lender's perspective?
Or do most lenders simply avoid lower-priced housing regardless of additional collateral?
- 2moDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Steve Candor:
I'm building a business buying affordable single-family homes ($20k-$60k) in middle america (OH, PA, Il, OK, IN, WV, etc) and reselling them with owner financing.
I recently completed my first deal and am now trying to figure out the capital side of the business. I am out of state and country now so I cant do any local meetups.
For those of you using private lenders:
Is 12% generally enough to attract lenders today?
Where did you find your first private lenders?
How difficult is it to find lenders when you're investing out of state?
I'm not looking to raise money through this post specifically. I'm just trying to learn from people who have successfully built relationships with private lenders and understand what actually works versus what sounds good in theory.
If you were starting from scratch today with no track record, where would you focus your efforts?
Should I be cold calling/texting owners on propstream? Ive tried but having no luck ...not sure if this is a dead end.
“Slow Flip” is the latest guru “recycled” strategy” (with a new name).
Here are some issues the guru failed to mention
1. As per your example in your follow up posts you purchase a SFR for $40k and resell for $80k, I assume with little to no physical improvements. The type of buyer that will pay double the value of a house because they can get in without loan qualifying and with 5% down are high default probability owners. My experience tells me your average time till default is in months, not years.
2. Thru doubling purchase price at sale, charging homeowners 12% interest, utilizing a CD instead of WD, and originating loans possibly out of compliance with SAFE Act your giving attorneys plenty of ammunition for an individual lawsuit, class action lawsuit, or even criminal charges by AG.
3. I don’t know any hard money lender that lend 5 years; 1 - 2 seem to be about it.
4. Property value at $40k yields loans too small for almost any lender to contemplate.
Now the positive. You can navigate around these problems, but you do have to prepare for them. This is somewhat similar to a “tote your note” used car business. A LOT of repossessions and resales; a LOT of “restructuring” defaults, and enough work to keep an attorney gainfully employed.
1. System to move from default to modification to collection to resale.
2. Attorney specializing in RE in EACH state, certified mortgage originator, strict compliance with SAFE on Federal level and state laws.
3. Private lender(s) instead of hard money lenders, possibly line of credit, cross collateral, blanket mortgage.
4. #3 above.
best of luck. Just make sure you’re actually HELPING your buyers, not taking their last dollar and kicking them to the curb. - New York, NY · Member since 2014 · 146 posts · 16 votes2mo
Thank you for the detailed response. I appreciate you taking the time to lay out both the risks and possible solutions.
A few of the concerns you raised, particularly around default rates, SAFE Act compliance, and financing, are exactly the areas I'm spending the most time researching right now. I make sure to stay under 12% and most of my loans will be at 10.9% to stay compliant.
The comparison to tote-the-note and Lonnie-style investing is very interesting. Its exactly the same formula but for a different product from cars, mobile home, to now single family. I will definitely check out wheels for deals.I agree that the goal should be creating a path to homeownership, not setting buyers up to fail. I carefully go over it with buyers. Like in Illinois they have a cool down law that I went over with them. I'm trying to understand what structures, markets, and underwriting standards give buyers the best chance of succeeding while still making the business work. I go over how Ill work with them to build their credit can so they can refinance which helps them lower their monthly and also provides an exit strategy for me.
The financing side has probably been my biggest challenge so far. Most hard money lenders seem to want larger loans and shorter terms, which is pushing me toward private lenders, lines of credit, and other alternatives. I'm looking at loans, selling the note, or lines of credit against buyers that are seasoned so I can pull more money out of the deals to grow.
I still need to work on some plans if they default so Im not scrambling last minute. I know itll eventually happen, although im trying to prevent it. What helps is I try to have my payments lower than the rent in the area so its hard to go elsewhere. My team has had very few defaults and 0 foreclosures. Im guessing around 2-5% and theyve resolved it immediately using things like cash for keys. Nothing horrific yet.
Thanks again for the thoughtful response. It's helpful hearing from someone who has seen different versions of this strategy over the years. Im learning a lot here.
- 2moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Steve Candor, Owner financing across that many states is worth mapping out tax wise since it changes your income recognition compared to a straight resale. Selling with owner financing generally lets you use the installment method under IRC 453, meaning you recognize gain proportionally as payments come in rather than the full gain in the year you sell, that's actually a real advantage for your cash flow and tax bill, but only if it's set up and reported correctly from the first deal, not something to figure out after several sales are already on the books.
On the private lender side, the 12% you're paying them is straightforward interest expense on your end, deductible against the business income. For your lenders, that interest income is fully taxable to them as ordinary income (if they are in business of lending) or as interest Income, worth knowing since some lenders ask about that upfront and it can be part of the pitch when you're trying to attract capital. Since you're out of state and out of country, also worth nailing down where the business itself is legally structured and how income sourcing works across OH, PA, IL, OK, IN, and WV, each state you're buying and reselling in can create its own filing obligations depending on how the entity is set up.
Happy to connect!
INVESTOR FRIENDLY CPA®5241 Reviews - 2moVijay FriedmanBusiness MemberMiami, FL · Member since 2026 · 766 posts · 122 votes
Quote from @Steve Candor:
I'm building a business buying affordable single-family homes ($20k-$60k) in middle america (OH, PA, Il, OK, IN, WV, etc) and reselling them with owner financing.
I recently completed my first deal and am now trying to figure out the capital side of the business. I am out of state and country now so I cant do any local meetups.
For those of you using private lenders:
Is 12% generally enough to attract lenders today?
Where did you find your first private lenders?
How difficult is it to find lenders when you're investing out of state?
I'm not looking to raise money through this post specifically. I'm just trying to learn from people who have successfully built relationships with private lenders and understand what actually works versus what sounds good in theory.
If you were starting from scratch today with no track record, where would you focus your efforts?
Should I be cold calling/texting owners on propstream? Ive tried but having no luck ...not sure if this is a dead end.
@Steve Candor
Congrats on getting your first deal done. Building relationships with private lenders usually takes time, and many investors find that demonstrating consistent execution matters more than offering the highest interest rate. Keeping your underwriting conservative and showing a clear business plan can go a long way when you're building credibility. - Member since 2022 · 74 posts · 45 votes1mo
How many slow flips have you done? I am also getting information on this strategy and may start implementing it soon. I plan on partnering with investors who have successfully done several of these.
- 7hErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Hi Steve,
There are many private lenders that can lend below 12%. They will require at least 10% down minimum on a purchase. If you are looking for a downpayment lender, you will likely need to pivot to a JV partnership and share some of the upside of the deal.
LuxePrivate Investments LLC 572 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.