Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes
Hey all, looking to hear from people who have structured a private loan as a line of credit. The main question is...how did you structure it so that it made sense for both the borrower and the lender?
The benefit of any line of credit over a simple loan is that you only pay interest on what you've drawn, plus the simplicity of only drafting one loan rather than doing it over and over again.
Where I'm struggling is how to apply this to a private lender utilizing something like their IRA. As a borrower, it doesn't make sense to pay interest on the full amount when it isn't being used. As a lender, it doesn't make sense to have money that can't be invested elsewhere but also is only earning interest when someone else decides.
I'm currently considering a couple of options...
Interest paid only on drawn funds, but with a larger minimum draw amount and a higher interest rate (~10%)
Low rate (2-4%) paid on unused funds, moderate rate paid on drawn funds (6-8%)
What am I missing? If you've done this before, how did you structure it? If you were the borrower/lender, what would be acceptable to you?
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
4y
I have carried back a second mortgage for my buyers, so that we'd get a lump sum and a small stream of income when we sold. Our title company set up the terms of the loan, and recorded it.
On the other side, I have two seller financed mortgages right now. Both of these were set up by the sellers' lawyers. What I have done as the buyer, is ask for 6% interest only. It is a higher rate than "market" at a bank, so that was appealing to my sellers, and they both wanted the lump sum of their equity back, as well as the monthly cash flow. The interest only portion keeps my payment low.
I am of the mindset that when I have my money out there in the form of a mortgage, I get interest for the duration. To do otherwise is a lost opportunity for me to use the money elsewhere. I have a set term, like a HELOC, such as a 5 year period of time.
Hey all, looking to hear from people who have structured a private loan as a line of credit. The main question is...how did you structure it so that it made sense for both the borrower and the lender?
The benefit of any line of credit over a simple loan is that you only pay interest on what you've drawn, plus the simplicity of only drafting one loan rather than doing it over and over again.
Where I'm struggling is how to apply this to a private lender utilizing something like their IRA. As a borrower, it doesn't make sense to pay interest on the full amount when it isn't being used. As a lender, it doesn't make sense to have money that can't be invested elsewhere but also is only earning interest when someone else decides.
I'm currently considering a couple of options...
Interest paid only on drawn funds, but with a larger minimum draw amount and a higher interest rate (~10%)
Low rate (2-4%) paid on unused funds, moderate rate paid on drawn funds (6-8%)
What am I missing? If you've done this before, how did you structure it? If you were the borrower/lender, what would be acceptable to you?
Thanks in advance!
Did you structure this with a company who would do private HELOC or with an individual? I am looking for someone right now. Thanks!