First Time Private Lending

[Tory Kelliher]

Hi, I'm new to biggerpockets and looking for some advice on first time lending. I am thinking about privately lending to a friend who has many years of successful REI experience. One of my concerns is usury laws. I live in California and here the law limits non-exempt private lending to 10% annual interest. My borrower lives and will be buying property in Massachusetts, where the law allows private lending at up to 20% interest. Does anyone know how the usury laws apply to private lending across states? Lets say he is offerering 10% interest and 1 point. Would this violate California usury law? Also, any recommendations on a good REI friendly lawyer in the Los Angeles area?

[Bill Gulley]

Good to see you on duty Will :)

Loans, initially, are governed by the jurisdiction where they are made, not from the source of funds used to fund them. I said initially as loans must also be compliant with federal laws. However, a state may see you as an out of state lender, that brings in other requirements, like registration usually has several caveats,  but usury will be governed in the state where the loan is originated. 

Though you said this guy was a friend and you want to charge more than 10%? LOL

I've made a lot of money at 10%!

If you want a bigger cut from your friend I'd suggest you consider an LLC instead of being a lender. Doing more than one loan can give you the flavor of a hard money lender rather than a loan to a friend. Good luck :)