Private money - interest rate advice

[Archie Minkowski]

Hello Everyone.  I'm a long-time lurker and podcast fan.  Retired LEO now living in TN.

I've flipped a few houses through the years and have a couple of new opportunities on the burner.  I've used hard money companies in the past and now have a business colleague offering to loan funds on the fix-and-flips, both purchase and rehab funds in one lump sum.  To be clear this would be private money from an individual and not a company.  

He's asking 12% APR with no points or fees. The interest to be paid after the house is fixed and sells. This may be a simple question, but does that essentially mean 1% for each month his money is tied up? (12% divided by 12 months.) For example if it takes us 5 months to flip and sell, then we'd pay 5% at closing.

Thanks everyone for the great info on this site.  

V/R - Arch

[Robin Simon]

Quote from @Archie Minkowski:

Hello Everyone.  I'm a long-time lurker and podcast fan.  Retired LEO now living in TN.

I've flipped a few houses through the years and have a couple of new opportunities on the burner.  I've used hard money companies in the past and now have a business colleague offering to loan funds on the fix-and-flips, both purchase and rehab funds in one lump sum.  To be clear this would be private money from an individual and not a company.  

He's asking 12% APR with no points or fees. The interest to be paid after the house is fixed and sells. This may be a simple question, but does that essentially mean 1% for each month his money is tied up? (12% divided by 12 months.) For example if it takes us 5 months to flip and sell, then we'd pay 5% at closing.

Thanks everyone for the great info on this site.  

V/R - Arch

 To your question on the interest, yes, you have the correct understanding

[Archie Minkowski]

Thanks for the response.

[David Stanley]

Hi, I’m also in TN and build new construction in Tampa, FL as well.  I work with a private money lender there with very similar terms and so far it’s a good relationship for many deals.  Best of luck to you!  I’m starting some fix and flip projects now in Knoxville.  Let me know if you ever want to connect if you are local.  Thanks! 

[Bobby Feinman]

Archie

That is not necessarily correct. To answer that question definitively I would ask your friend the following question(s):

1) Is is 12% of the loan amount (12,000 on a 100,000 loan) or is it 12% based on an annual interest rate (1,000/month on a 100,000 loan) 

2) Is there a minimum interest requirement

Also inquire into the LTV and a breakdown of the loan proceeds -- how much to acquisition and how much to rehab. You want to confirm that 100% of the rehab will be funded from the loan.

Hope this helps!

Bobby

[Andrew Garcia]

Hi @Archie Minkowski, this is really a question for the colleague. Some loans are a 12-month term and if you pay it off early, you still owe the interest for those 12 months even if you repaid the principal in 5 months.

I would work this out with him because 7% is a large sum of money.

Hope this helps! Let me know if I can be of any assistance.

[Frank Greg]

@Archie Minkowski

I've used hard money companies in the past and now have a business colleague offering to loan funds on the fix-and-flips, both purchase and rehab funds in one lump sum.  To be clear this would be private money from an individual and not a company.  He's asking 12% APR with no points or fees.  The interest to be paid after the house is fixed and sells. 
 

It may be a private individual or a friend but you want to ensure you have a formal contract that gets into the various details typical with a rehab loan. From what you explained, lender is providing 100% acquisition and rehab funds, you don't have any out of pocket expense or down payment? Your lender is also deferring all interest payment which is to be paid if or only when house sells? This sounds like a huge risk for the lender. What happens if there are issues or delays with repairs? Or delays with selling the property? What is the maximum term of the loan?