Hard Money Lender Getting a Taste of the FLIP

[Barry H.]

Hey BP Community - I am pretty new to BP but have been investing in rental real estate about 13 years and recently moved into Hard Money Lending (HML). In my HML deals, I am lending for short terms (4-6 months) at higher interest rates (typically Flips) or longer terms (1-2 years) for BRRR type investments. My inquiry has to do with Flips.

Some of the Flip deals presented to me are attractive as an Investor vs just a Lender. I suspect there are other HMLs out there doing this - but I would like to know more about lending for a specified term (e.g. 6 months) with deferred interest rate payments in exchange for a "Taste of the Flip." Please let me know how this works and what is your opinion as to a reasonable percentage of the Flip sale profit ??

[Ariel Salvaro]

Just thinking out loud here, I think there are 2 scenarios: 

1) If your borrower would not have enough funds to close the loan without a partner, but brings forth an attractive property, you could come in on the deal as that partner, without having to cut down interest rates - you could just have the borrower pay their fair share of the payments (whether those are deferred, or not). 

2) If your borrower has enough funds to close the loan with you on their own equity, there would probably need to be a reduction in the interest rates, and/or more flexibility on deferred interest payments in order to get in on that deal as an investor, on top of being their HML.

I know I am speaking in very general terms, so I hope this is at least somewhat helpful at least as you think about the option!