Self Directed IRA Lending - 2nd Position Secured Note on Rentals in Austin,TX

[Stephen Stokes]

I just closed on a private secured note with a friend who I helped move money to a self directed IRA but we both know the rate is relatively low (5%) and they will probably want me to prepay it before the 12 month term expires once another investment opportunity comes about. This is a 2nd position secured note backed by deed of trust on few of my rental properties which are in Austin, TX. The rental properties are now at 75% LTV with this new note included. All very well maintained and consistently updated properties in nice areas close to downtown. My question is, what would someone think is reasonable to get something like this done for a longer term note that makes sense for both parties. I would not be willing to pay 10% for example but would be interested in rolling this into a longer term note with another interested party in the near future. Also the payments are interest only to keep the cash flow relatively flat on the rentals.

[Rick Pozos]

If you are putting a 2nd on several properties, 5% sounds reasonable. BUT why would you put a lien on several properties?? Just put one lien on one property. Sure you will pay higher interest rate, but you keep the other properties with only 1 lien.

2nds are usually higher interest rate. I would think 2nds are about 12% interest rate. Personally, I pay 8 to 10% for 1sts. 

Of course, its all relative. If someone is getting half a percent on their money on a 3 year CD, and now they can get 4%, they might think 6% is great. But most real investors are going to want 12 to 15% on a 2nd. AND it depends on how the people know you and trust you. Its a matter of risk.