Current Private Lending Rates

[James Palassis]

Private Lenders: I did some lending a couple years ago, usually getting a couple points and 10% interest. That was when inflation was 2% and conventional rates were 3-4%. Now planning to do some more lending (to local folks I have worked with in the past). 

Question: with inflation approaching 9% and mortgages approaching 6%, what are you private lenders getting for your money these days? Are we still in the 10% range?

[Jeff S.]

The industry seems to have divided itself in two: 1) The giant mega-HMLs who really have no competitive advantages except price and are absolutely killing each other racing to the bottom over rates, and 2) everyone else.

I really haven’t seen anything change much. Even though terms are regional, we’re able to get rates out here that are similar to yours. So long as you have a reason for others to want to borrow from you, such as long-standing relationships with those you “have worked with in the past,” I wouldn’t change much, @James Palassis. See this recent thread, Innovation in the Hard Money Lending Space.

For lenders with appealing terms and decent lending criteria, this is an extremely slow-moving and inefficient market. 10% plus two points for a 6-month loan is a 14% APR, or 12% APR if you write your notes for a year. That's still good though you might confirm your local rates and terms by attending a few local real estate clubs and ask around. There is so much money out there now, the likelihood of being able to increase rates much over this is low, in my view. On the other hand, if you offer appealing competitive advantages, there's little reason you'll have to lower your rates.

When Wall Street and the insurance companies (who don’t know the meaning of the word “loyalty”) start looking elsewhere because returns are greater, the giant mega-HMLs, who work on razor-thin margins but against big $$$, with either have to raise their rates or fold. To me, this will be entertaining and nothing else. As a small lender, we don’t compete with them. You shouldn’t either.