Current Private Money Terms?

Question

Good Morning BP! I've never used private money to purchase a property however I may have inadvertently found a pm lender.

With institutional rates on the rise over the past year I'm curious what rates/terms most private lenders as asking for these days?

While I understand that we can set the terms however we'd like, my potential lender is a long time client and friend so I want to make sure what we agree to is fair for all involved. Thank you!

Scott Trench · Answer

This is nearly impossible to answer without more context and it depends on the use case.

I think a great way to understand terms here is to shop for private loans. If this is a flip, you should shop or hard money loans in your local market. If a buy and hold, you should learn about seller-financing and private mortgages to understand competitive terms. You should bring this understanding of the market to your friend.

A couple of thought starters:

- If a hard money loan, an example might be in the ballpark of 1-3 "points" on origination, 55-75% loan to ARV, with staged release of funds (some released on closing, additional funds released as the project demands the release of funds) plus 8-12% interest, paid monthly, with a balloon due upon refinance/exit (not to exceed 12 months).

- If a private mortgage, an example might be in the ballpark of a 25-year amortization schedule, 5-10 year balloon, (contingent on the property appraising for at least the current/purchase price), 6-9% interest, plus perhaps some "points" on origination.

All of this is negotiable, it's impossible to state what "market" is for these types of loans because they aren't widely reported, and folks who do this all day long probably have experience with wildly different loan terms than the examples I used here.

A first-time investor without strong credit, and the ability to likely would have

Christopher Davis · Answer

I am a pirate money lender in Knoxville. We are 10-13% and 2-3 points. Generally the more experience you have, the more reserves, and the more deals we have done with you gets you on the lower end of that spectrum.

Ned Carey · Answer

@Trent Rogers true "private" money is just that, a private individual that lends to you because they know and trust you. True private money is what ever you and your lender can negotiate. Private money can be anywhere from 4% to 15%.

If I knew you and you wanted me to lend to you I wouldn't consider less than 10%. Your little old Aunt Millie might think if you are offering 10% it must be a scam.

Trent Rogers · Answer

Thank You!

Dylan M. Davis · Answer

The prime rate is 7.5%. Most bridge loans float over prime for the rehab projects. Floor rates for DSCR loans are around 7.125%. Make sure they're well-capitalized and have accurate valuations of the property. Many "new" lenders or personal connections don't have the analysis tools like a private money lender that's established does to make sure the deals work..

Steve Vaughan · Answer

Funding a project sounds different than a lender wanting a first.   I don't do complicated equity partnerships or anything where I need approval from or have to run a decision by my lender.  But we've had a relationship since 2005 and he is protected with a lower ltv.

Yours sounds more professional than my idle 80yr old.  Try for 7%, no fees, no say. Your competition is the 2yr treasury paying 4%.

Trent Rogers · Answer

Thank you, that is the type of feedback I was hoping for!

Interestingly enough, it wasn't me pitching PML to him, it just came up with conv. and he expressed serious interest. He's tried to fund other projects that didn't interest me at the time, I think he just constantly looks for ways to work his money...don't blame him, that's a problem I hope to have myself one day. lol

Steve Vaughan · Answer

My guy charged 6% in a 4% conventional environment for a long-term 65% LTV 1st.  No points, fees or appraisal.

Today he would be more like 6.5-7%.

The key is he asked me.  He wasn't earning squat in 'high yield ' savings accts.

You will probably pay 10+% plus points if you ask them.

Trent Rogers · Answer

You nailed it in scenario #2 (see update below).

If he would go longer terms I'd be open to it but my goal would be to get the properties refi'd with an institution so that I can keep using his cash for acquisitions.

I like the sound of a 25yr amortization with a 5-10 balloon. It sounds like the more it get's structured like a conventional loan the closer I get to conventional rates?

I guess it's a matter of the investment strategy of the lender...I'll have to pick his brain a little more and explore longer terms.

This all came about because I briefly mentioned how PML worked in a conversation one day and he was all about it.

Current Private Money Terms?

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