18 % from Hard Money Lender to high?

Question

BP,

Here is my current dilemma! I have a family member who is trying to avoid going into foreclosure and has agreed to let me buy the property for the remaining balance, which is about 23K. I recently finished a renovation project on a investment property which is why I am a bit strapped for cash. I have found a hard money lender who is willing to loan me the payoff amount of 23k with 25 percent down for 5 years at 18 percent interest. Is this the common rate or should I look else where for better rates?  I am open to any suggestions and I look forward to your thoughts.

James Wise · Answer

Just throwing this out there. I have no affiliation to the company so not advertising  just helping out. I have used this loan myself. Discover offers 25k personal loans for as low as 7.99% interest (5 year term) & 8.99% (7 year term) No fee to set up or pay off early.

David T. · Answer

First of all you have to ALWAYS look at hard money as a temporary solution. You also would only engage with a HML if you have short term (high) profitability.

The best hard money deal I've come across is 12 plus 4 points for 6 months money, $200k with a PG. Hawaii is always going to be little more expensive, right!? :).

Don't go into this deal unless you can refi withing 6 months, after that you're dealing with one issue exclusively; profitability. That means you have to carefully analyze your costs and your exit process.

Sounds like you're rolling though. Good luck with it.

Bryan H. · Answer

A couple ideas for you that will have lower interest rates

1. Borrow from your 401k? You can get rates <5% for 5 years

2. Peer to peer lending sites offer up to $35k. Depending on your credit, it can be less that HML

Patrick L. · Answer

It's not the 18% that's too high, it's the term that's too long.  Hard money loans are usually used for 6-12 months  while your rehab and then either flip or refinance into a conventional mortgage.  In your case the loan amount is so low you're not going to find many people that want to lend on that and the fees are going to be a huge precentage.  You said you're putting 25% down so that's only a $17k loan so you're only paying $3k in interest in the first year anyway.   If that's the only way you can do the deal it could work but I'd try to get the loan paid off as quick as you can.

James Wise · Answer

@Jay Hinrichs  Yes I thought it was a great deal. It got me in a duplex "free and clear" and i'm coming up on my 12 month seasoning. Im going to do a cash out and i'm expecting the house to appraise for 75k. (bought it for 36k)

I believe you need to be a card member to get the loan and yes good credit is needed along with some income verification, but thats pretty standard with any loan worth doing. I try to stay away from loans that are over 10%

That 50k loan you have is awesome. I would have done the same thing. If you can get 50k that cheap you do not even need to have something lined up for it. You take the loan and then find a use for the cash.

Jay Hinrichs · Answer

@James Wise    thats a good tip... I suspect you would need stellar credit to get an unsecured loan at those low rates.  WAshington Mutual ( now chase ) was agressive with those I think I had a sig loan for 50k and its about 5% right now.

I really don't use it but I don't want to give up a 50k unsecured line that is this cheap incase I need it for something. As I know I could probably never replace it with a large institution again.. I as frankly shocked when Chase bought Wamu that they did not call this loan

Mary B. · Answer

It's always good practice to shop around. Yet you'll find that most HML will charge from 15% to 18% interest.

Will the payments work for your relative is the question. Find out if there are there prepay penalties. If so get a clear statement of what they are. Most times there aren't any but every now and then a lender will charge a fee if the borrower pays it off in full before the end of the loan term....

Kudos,

Mary

Thomas Quinn · Answer

What are your plans for the property?  Is 18% high maybe but if the numbers work for your plan then it might be worth it.

Loren Davy · Answer

Finding a hard money lender to lend on amounts below 50K is tough, but 18% is high.

18 % from Hard Money Lender to high?

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