Structuring private money deals

[Sean Eads]

Question for private money deals:

For those doing flip projects - how are you structuring your deals with your private money lenders whom don't require points. For a flip project in which you need 100k, are you offering them (lets say) 8-10% interest monthly or on total return after the flip is sold. For instance, a 100k private loan at 8% for 3 months would be 667/mon --> 2000 total return whereas 8% return on the 100k would be 8000. Obviously, the 8k return is more attractive for the private investor and less attractive for you as the flipper but wondering thoughts on how some of you all go about structuring deals where you are dealing with interest only payouts? Thanks!

[Bob Floss II]

@Sean Eads When you talk interest with a private lender, you typically are calculating a simple interest balloon note. Your monthly payments will be $667 with a balloon payment of the total amount due on a set date, possibly 6 months or a year depending on the project, if it doesn't close sooner.  Typically investors want at least three months interest if you somehow sell the property faster. The investor will only get the $8,000 if you hold the property for a year.