Private Lenders--how low or high interest rates do they offer?

Question

We found someone who does private lending with 11.75% interest charge. Seems high, but I have no idea if that is a pretty common interest rate. What kind of interest rates have you been able to get when working with private lenders? How fast did you pay it off? What kind of property did you buy with it (buy and hold or did you flip it)? What other stipulations did you have?

Kristi Harmon · Answer

Thank you for your comments! I will do some more digging. The lady who does hard money loans is my husband's friend's mom. I wasn't really looking for private lenders right this minute, because my hands are full getting a house ready for renting that we just purchased couple days ago. Plus we have another house that we are trying to close on in the end of this month. We were going to put 5% down and move into it, but I guess my husband is not so excited about it, since it is a smaller house and we already have so much junk. I guess he has been complaining about it to his friends and that is how he found out the private lending option. If we put 20% down then we would just turn that house right into a rental. I just have to get more info and crunch some numbers. However, I would love to find lenders who would do less than what we are offered right now. I have to tell my husband to complain even louder i guess ;)

Charlie Fitzgerald · Answer

Depends on the lender and how well capitalized they are and what their cost of capital is.  As Chris Mason points out, rate is one component.

Bill Hampton · Answer

@Kristi Harmon, contact @Kweillin Gordon at Visio Lending. Their rates are very competitive

Rick Pozos · Answer

12% with about 3 or 4 points is kinda what HML are charging right now.

I try to borrow from friends and family and friends of friends and family(true private lenders). I usually get about 8% or 9% with no points, 1 year term. I have gotten 6% for 15 years. It just depends on what they want. If someone can do 1 year term, then thats what we do. If they can do 5+ years, then I can keep it as a rental or wrap it.

When talking to a potential private lender it is the relationship that you have with them. The 6% deal was a retired cousin who did not need the money to live on. It was going to go into a CD, but I got ahold of her first. I knew the money was going into a CD because I asked, but more importantly I asked then listened very carefully to her wants and needs. I was able to surpass her needs and she trusted me. I will probably pay her off early and borrow again for a 3 to 5 year term.

The best place to network is with family and friends.

Daniel Dietz · Answer

@Kristi Harmon

You are getting some good advice here. Make sure to shop around and do some digging here on the BP Forums for old chats that contain some good info too.

One other route is to look for what  I call friends and family private lenders. For some this is hard, others not so much. BUT, it depends almost entirely on your per-exisiting relationships with them.

In my case, I am a construction contractor with 25+ years of experience in a smallish town and a stellar reputation. People know who I am and associate a certain level of trust there. In my case, local private lenders could be family, friends, and past customers.

The ones I have worked with in the past were in the friend category - they had large portfolios of investments (something we talked about in the past) with significant portions in CDs at 1% or less. They had previous real estate experience so were comfortable from that aspect. They were happy to make 3%-6% rates secured by real-estate.

I actually did a 'no money down' deal where I re-bought a foreclosure from flipper we work a lot with (providing him product). FMV of 140K, he bought for about 75K, re-sold to me for 85K with terms of 6% interest only payments for 6 months. My dad/business partner was going to take IRA funds for the fix but wanted to avoid the tax hit if possible. So I asked my private lender for 25K in fix up funds. Got them @3% interst. I provided all labor myslef which was my 'skin in the game'.

Again those, these area all based on RELATIONSHIPS.

I am now talking to the same private lenders AND some previous customers for an upcoming deal. My customers are often the kind who are building 500K+ second homes for cash on the area lakes. I assume they have a big part of their portfolios in 'safe things' like CDs etc... We will see :-)

Dan Dietz

Chris Mason · Answer

They get you on points, not on rate, mostly.

Got one now that can't go fannie/freddie/jumbo. North of 3 quarters of a million dollars.

Private money wanted 30% down, 4 pts (!), interest rate north of 6, no prepayment penalty.

Talked 'em down to 20%, interest rate north of 7 for the borrower, but couldn't get them to budge on the points.

Go ahead and multiply 4% by $750k and tell me if rate is really what we should be focused on here when evaluating if this makes sense, or if we should just move on from the property...