What is a typical return for a private investor?

Question

Do they just earn interest, or some other percentage of the profit? If you can point me to some education on how to structure an agreement like this, I'd appreciate it!

Rhonda Shrum · Answer

You guys have given me a lot to think about! Are there any forms anywhere, basic contracts you can edit?

Daniel Dietz · Answer

@Rhonda Shrum you are getting some pretty good info here so far.

One of the ways I look at it, half jokingly but seriously at the same time, is it depends whether you are doing the lending or the borrowing ;-)

In all seriousness.... my first deal which was going to be a flip but turned into a rental worked like this; I am a contractor in my 'day job' and I do a lot of work with a guy that I would call a professional flipper. Things were booming but he ended up with too many houses to work on at once. He bought a house that was assessed at about 140K or so for about 80K, sold it to me for 90K with nothing down and 6% interest only with a balloon in 6 months. HE borrowed the money for all of his projects from retired family members who were mostly retired farmers who thought the 3% rate he paid them was a heck of a lot better than those 1% CDs they had! He made a 3% spread and a quick 10K profit.

My contribution was the fix up labor and dollars. My dad & I were working on this together and we were going use some of my dad's IRA funds (he is over 60 years old). We realized how much of a tax hit dad would take before we started, so I approached a retired friend of my own that I knew had a lot of dollars in CDs too and offered him a 6% rate on 25K needed to fix things up. He would only take 3% from me!  He too was happy with that, and knew my personal situation of having lots of dollars in home equity and retirement accounts so would make things right if needed.

These are some of the lower rates I have heard of out there, BUT these are not people actively out there looking to lend - they are people I found who knew me well enough to trust me in this case.

I am now looking for individuals to loan for buy and holds for anywhere from 3 years to 15 years and am hoping to pay rates of 4% - 6%. One avenue I am approaching is looking for existing owners of rentals that have them paid off and would be willing to owner finance for 3+ years, which is long enough to build up the rental history, build some equity and get ready to refinance more traditionally.

Good Luck, Dan Dietz

Matt Y. · Answer

It all varies.  I know people that have investors that they are paying 6% and also a lot in the 15-18% range.  The good news is that is literally depends on who you know and your ability to negotiate with them.  Right now there is more capital than investments out there...it's driving the cost of capital down.  I'm looking to invest or lend locally and I'm competing with what I call retail investors that don't want much profit.

Chris Erwin · Answer

@Rhonda Shrum

It really depends. I know some investors that invest in performing notes that pay 12% interest only. If that is of interest for you, I would recommend you speak with @Darren Eady.