Being a Private Lender to Flippers - Real Numbers???

[Tony Hill]

I am considering the path of being a private money lender for fix and flip investors (I don't have the money to lend at this point, just doing the research).   

I am curious as to the reality of lending out short term loans to flippers (IE 10% for 4-6 month terms).  Assuming I take the proper legal precautions and lend to someone with a solid track record of flipping quick and profitably, this seems like a no brainer as it would return 20-30% annually.  

Am I missing something?  What are the real numbers I could potentially expect from doing this?  

Thank you!

[Neil Aggarwal]

Its not 10% for 3-4 months.  Its 10% annualized rate.  So if the borrower pays you off in 6 months, they will have paid 5% in interest.

[Neil Aggarwal]

Short term lending is a good business.  That is why there are so many HMLs in every market.  You said you don't have the money to lend out.  That is going to be a hard nut to crack.  You also will need to be able to evaluate properties to make sure you are making good investments.

[Tony Hill]

Thank you for the quick reply  @Neil Aggarwal.  I do not have the money right now, but I am on track to have a large enough amount to start investing with.  I am just asking a theoretical question so I can know exactly what I will do once I have, say, $100-200k.

[Bob B.]

Tony,

Are you planning on charging 10%+ for 3-4 months?

That's a pretty good return.

[Neil Aggarwal]

Its not 10% for 3-4 months.  Its 10% annualized rate.  So if the borrower pays you off in 6 months, they will have paid 5% in interest.

[Tony Hill]

Thank you.  I thought that might be what is meant when I heard of these short term loans.  

So, just to be clear, anything close to a 10% return on a 4-6 month private money loan is completely unrealistic, correct?

[Tony Hill]

@Bob B. I would love to, but, as you can see, this is more likely a pipe dream.  That's why it seemed like I was missing something, because, if this were available, investors would be flocking to it like mad.

[Michael Hicks]

@Tony Hill, when I borrow private money I want it to be a win for both me and the lender.  Most of my flips are all in at $40,000 to $60,000.  My last was all in at $40,000 from my private money lender.  I offered him 15% apr interest only so that its worth his time.  That's only $500 a month on my end but I completed the flip in 3 weeks,  in contract the same day as completion.  We will close in a few weeks.   I only used his money for a total of 2 months or $1000. To me that is not much for the use of his money so I will be giving him a bonus at close.  I want to keep working with him on future deals so I want to keep him happy.  This may not be how others view private money but for me I like to look at it on a deal to deal basis and make it work for both parties.   He doesn't require points up front and most hardmmoney lenders won't loan under $50,000.  

[Dell Schlabach]

@Tony Hill what you are describing is not that out of line with hml. It is usually structured differently but the net is about the same.

Around here small hml/private lenders are charging 13.5% annual, plus 3,000 in points. 

100,000 loan for six month, returns 6,500 interest + 3,000 in points = 9,500,  if you can turn it twice in a year almost a 20% return.

I used to pay this years ago,but today we are paying 8-10% annual, 0-2,000 fee depending on private lender we are using. 

[Tony Hill]

Thank you for the specific and useful replies!

 @Michael Hicks You seem like the kind of flipper I would be looking to lend to someday for sure.  It definitely makes the most sense to make every deal a win-win, that's the only way to be truly sustainable in my eyes.

@Dell Schlabach It seems like HML could be quite the profitable way to go for a lender, but your personal story is a perfect example as to why it might not be the best path. To lend to more experienced, reliable flippers, the lender will have to lend at a lower rate. No matter how good a deal may be in the HML world, you are still lending to a person who can be a big variable.

[Gregory Crane]

Quote from @Tony Hill:

I am considering the path of being a private money lender for fix and flip investors (I don't have the money to lend at this point, just doing the research).   

I am curious as to the reality of lending out short term loans to flippers (IE 10% for 4-6 month terms).  Assuming I take the proper legal precautions and lend to someone with a solid track record of flipping quick and profitably, this seems like a no brainer as it would return 20-30% annually.  

Am I missing something?  What are the real numbers I could potentially expect from doing this?  

Thank you!

 @Tony Hill DM’d you

[Shenell Caldeira]

Quote from @Tony Hill:

Thank you for the quick reply  @Neil Aggarwal.  I do not have the money right now, but I am on track to have a large enough amount to start investing with.  I am just asking a theoretical question so I can know exactly what I will do once I have, say, $100-200k.

You can also start small as well and build on that. I was gonna start with $20,000 with a reputable REI who I know has done some deals, and the terms were really great. Then definitely when you get into the bigger numbers it would be great to lend.

[Chris Seveney]

@Tony Hill

You don’t make 10% over 6 months, it’s 10% annual so in six months it’s 5% (plus any points).

[Doug Smith]

Hitting 20%-30% annualized return financing flippers at 10% annualized return for 4-6 months would be tough to do even if you charged points. Points are fully-earned when they sign the note, but you would have to have them pay the loans off incredibly quickly...like in 40-60 days to make that fly. You'll need to make sure you're not running afoul of usury laws. Please also remember to take into account the time your money is not in play. It's really hard to balance the capital that you need to operate...having money available when your flippers need it...with having too much $ in the bank account just sitting there. It's an important part of your business model to account for the dead capital not in use. I would struggle to make the math work to hit those returns charging 10% for 4-6 months even with points. I'm not sure if that helps, but I wish you well in your venture. 

[Ben Firstenberg]

I heard once about a guy whose business was to broker hard money loans to flippers. He had connections to a bunch of HNW individuals who would provide the funds and flippers who would provide the deals. He would lend at 15% interest per year, keep 4% as his fee and give 11% returns to the investors.