Fair Private Money Returns

[Christian Ehlers]

Hi BP! I have been running my own STR for awhile now and am looking to expand by leveraging private money relationships (as well as some of my own money from my Real Estate Sales Business). I'd be looking for about $300K to $500K all in (Cash purchase plus rehab costs) from the private money lender. I'd be looking for Money only, I would manage the purchase, rehab, refinance and renting out of the property using BRRRR and then would like to rinse and repeat with the same money.

My question is what is a fair % return on the lender's money for something like this? I have heard very different numbers, I'd like it to be high enough that the lender feels good about it and wants to lend to me again afterwards, but also low enough that it still makes sense for me to use private money versus a hard money lender. I've heard in the range of 8-10%, but want to know what others have seen that are more experienced than I am....

[Gene Hacker]

When I see "private money" being advertised, it is generally "hard money" terms.  They just changed the name, trying to get more interest.

I have worked with several true private lenders.  They were mostly family members and friends that saw what I was doing and liked the idea of a steady, relatively low risk return.  I also did several loans with motivated sellers that agreed to carry back financing.

The last few years, my rates were generally 7% with no fees or points. 

This summer I have increased it to 8%. This particular lender actually stated that I didn't need to do that.  But I want it to be win/win for everyone.  

I keep LTVs under 75% and I would do ANYTHING to make sure they get paid back as agreed.

I never make my problems my lender's problems.  I went through the entire 2008 crash with not missing one payment to any lender. Another example: I had a major fire in one of my units with a private loan.  I called the lender and told them about the fire and assured them that it was fully insured and their payments would continue as promised.  8 months later, they got another call saying the home was fully repaired and it was rented again.