Thoughts about Financing Solutions
Have you encountered challenges with high-interest rates in private lending? How did you handle or minimize these expenses?
I am an old head in the game and started before many forms of private or hard money lending existed. I stumbled across private lending and was amazed at what borrowing money did for my investing (the supply of leverage). Not just more cash to do more deals, but cash to do better deals in different neighborhoods. I even was able to attract better contractors once the projects were in nicer neighborhoods - all thanks to other people's money.
I guess I never looked at the cost of the money (fees/interest) as a negative, since I realized that in order to experience growth, capital would be necessary. I factored the cost of that capital into my calculations from the start (working the numbers backwards from the ARV to the purchase price)(this also encouraged me to buy the properties at a lower cost).
I will say that the borrower has a better chance to negotiate on the fees, interest and when they are to be paid with a private individual lender as opposed to a hard money style lender (that has more overhead). I typically didn't negotiate the interest rate or points (as they would invest it elsewhere for more), but did negotiate the way it was to be paid (at the sale or refi, as opposed to upfront or monthly).
I would ask myself "expensive relative to what?" Either there are cheaper options you can go to or you just need to consider it the cost of doing business and factor it in to your offer price. Best of luck! As a hard money guy with my finger on the pulse of the lending market I'm always happy to give you an idea of whether the pricing/terms you are being quoted are reasonable. Best of luck!
