Private Lender only wants 5% interest?? Is this common?

Question

Hi everyone,

I’m currently raising private funding for real estate and I came across a lender who only charges 5% interest. Here are his other loan terms:

100% financing on purchase price and rehab

Interest rate 5%

Funding frame 10 business days

No pre payment penalty

Max loan duration 10 years

Amortization repayment available

Interest only payment available.

Has anyone ever found a money partner that only charges 5% interest?? I want to make sure I’m not being scammed since I’m aware that there are alot of funding scammers out there. Thanks in advance!

Mindy Jensen · Answer

@Neisha T., this is almost 100% a scam.

He'll ask you for a security fee, an insurance fee or some other made up charge ahead of time. It's a low fee, like $500 or $1000, and when you send it, that's the last you hear from him.

Private Money comes from someone you know in real life. Your dad. Your uncle's dentist.

Hard Money comes from a company that specializes in lending money based on the deal, not on your personal finances. They're taking more of a risk, and therefore charge more interest. 8-9% if you're well known and established, 10-12% if you're newer.

5% is almost bank rates. NO ONE that you don't have a personal relationship with is going to give you 5%.

I'm glad you asked, because I really hate to hear stories of someone getting scammed. Check out www.biggerpockets.com/scam for more red flags to watch out for.

Jay Hinrichs · Answer

THIS IS A SCAM  ITS VERBATIM FROM EVERY SCAMMER  EXACTLY AS YOU DESCRIBED ABOVE.

THEY WILL APPROVE YOU TOO QUICKLY JUST NEED TO SEND THEM A DEPOSIT..

THEN THEY WILL TRY TO GET MORE MONEY OUT OF YOU AND THEN ASK YOU TO BUY INSURANCE  THERE IS NO MORTGAGE INSURANCE FOR PRIVATE LOANS.  LOL...…

THANKFULLY YOU ASKED BEFORE YOU WAISTED MONEY.. AND MORE IMPORTANT YOUR TIME..

HERE ARE REAL LENDERS..

LIMA ONE

IRON BRIDGE

LENDINGHOME

LENDINGONE

VISIO

PATCH OF LAND

GROUDFLOOR

AND MANY OTHERS.. THANK YOU FOR POSTING .. IT HELPS

PRIVATE LENDERS DONT CONTACT YOU AND DONT ADVERTISE THEY FOLKS YOU MEET IN PERSON AT MEETUPS OR KNOW ALREADY.. ANYONE ADVERTISING OR CONTACTING YOU IS IN THE BUISINESS.

ITS JUST A CATCH PHRASE THESE DAYS  ( PRIVATE LENDER) GIVING YOU THE ILLUSION THAT YOUR GETTING CHEAPER MONEY THAN FROM AN ORDINIZED LEGAL LICENSED LENDER.

Jay Hinrichs · Answer

Mindy banks today are at 6% to 8%  apr..  unless its large MF or your a 1% er borrower IE very very big time..  People confuse owner occ or long term mortgage rates with the rates they should get on short term loans.

THE OTHER Major red flag is they will send over a copy of LLC registration like that gives validity and then they will offer a copy of their drivers license.. again something that simply is not done in the industry but those that are new don't know that and get impressed and sucked into the scam.

Jeff Copeland · Answer

5-6% on private long-term debt is not unheard of.

Is there a funding fee or points paid up front at closing? (I'm not suggesting this is unethical, just pointing out that the points is where many lenders make a nice chunk of their profits up front - and rightly so in many cases for taking on the risk).

Nova T. · Answer

Thank you everyone for the advice!

Chris Mason · Answer

Sure, that can be real, provided it's actually a private lender... your wife, your dad, your cousin, your sibling. I've seen lots of private loans at 5%, 6%, etc.

If it's a hard money lender giving himself funny names (eg, not actually a buddy of yours that you've known for 30 years) then that's not going to happen, it's a scam.

John Thedford · Answer

No surprise. There are thousands of FRAUDS just like this one. The two biggest clues are the very low rate (you won't get that rate from strangers) and the fast closing (you might get that from a legitimate lender). BEWARE any lender that wants advance fees with the exception of an appraisal fee. I have been talking to a couple lenders lately and they are quoting me around 7% with no up front costs except for an appraisal fee. They do charge in the neighborhood of $1200 in fees on top of the appraisal but those are paid AT CLOSING.

Mindy Jensen · Answer

Ah, yeah @Jay Hinrichs, I am quoting owner occupant bank rates. Thanks for sharing that investor bank rates are much higher than this scammer is offering. I love that you keep an eye on our newer members, and hopefully keep them away from these scammers.

Mark Safrin · Answer

5% interest only, 100% of purchase up to 10 years...

Sounds like a scam IMO.

Even if you hear from them again after your loan downpayment clears, no matter how unlikely that is, I would still carefully look at any hidden costs: Closing or other fees, points..

What size loan are we talking about? How large is the loan downpayment?

I would also consider posting their name here somewhere and asking if anyone else has done business with them. Do they have 3rd party online reviews?

Just someone who is happy to lend 100% of purchase without the borrower having skin in the game makes me think of a red colored flag.  Add to that a considerably lower interest rate than usual and a longish term IO loan... makes me think of more red flags than a Soviet era Mayday parade.

Caveat Emptor!

Ryan Dossey · Answer

The only time you would really get 5% interest is if this was friends/family investing with you.

Private Lender only wants 5% interest?? Is this common?

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