Family Private Money|Hard Money| Fee Structure?

[Michael Glaser]

I'm currently in scale mode and would like to join forces with a family member who has offered a sizable amount of money to invest. Right now I'm in BRRR mode and have been pretty successful the last year. The family member doesn't have any idea of what they'd want to charge me so It's up to me to suggest a fee structure.

My only question is how much should I charge myself in points and interest?                 

I'm thinking a HML at 10% is a good return for a family member. The hope is to refinance with a bank in 6-12 months.

Not sure where to start and make it mutually beneficial. 

[Tyler Weinrich]

I agree with other posts that the market rate for a HML is 10-12% with some points. However, is your family member an active hard money lender? If they didn't lend to you what return would they be getting?

HML's are able to charge points and higher interest because that is their full time job. They know the business, they spend time in it, they know how to underwrite loans and people and deals. They expect a small chance present to take back your home.

Private lenders, your family member included, are a step further in the passive investor direction than a HML in my mind. They don't do this full-time usually. They don't have to worry about things going wrong as much. In exchange for a safer investment, they should expect less in return.

I borrow from several private lenders and we don't mess with points or amortization tables. If the deal is a flip, I pay 6-months' interest at day 1 and another 6-months' at day 181. If the deal is a rental, we keep it short-term with 2 year notes at 8-10% interest only.