ROI To A Private Lender
Okay guys...I need some ideas and feedback on this one. How would you guys present to a private lender on how you will make a return on his investment dollars? The private lender seems pretty flexible however, he wants to be sure that he's making a good return on the money he's letting me borrow? How can I present to him a way that is win/win for the both of us? For information purposes let say the borrowed amount is 10K. I appreciate any good feed back from you seasoned investors. Thank you!
Is the loan secured ? If secured by Real Estate I might suggest 12 % interest a year
Good LUCK and Thank You
Hope this helps some
Ted Jr
No the loan is not secured, it will be unsecured. The private lender's only concern is that he makes money on top of his money. I just need to present a win/win scenario that is good for the investor and myself. How have any of you structured your dealings with a private lender
Maybe it was just a number but 10K isn't much. If your investor can fund all of purchase and repair costs offer 12% interest only payment loan with 1 year balloon. Write a mortgage and file it. That gives him security and a good return.
TBARBER
Okay, anybody have more feedback to this subject?
Decide on an interest rate...say 12% or whatever.
Decide on the life of the loan....say 2 years.
Make this loan an interest only loan, paid out quaterly. Every 3 months the lender gets a check for $300.
At the end of 2 years, you make your last payment and give him his 10K back.
Calculate the ROI at each quarter and show him/her how much they would have made at the end of each quarter.
If they still want higher returns, you can suggest you pay points or add in pre-payment penalties.
Below is a short article I submitted explaining a little what I did.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=439
(Sorry, typo....Thanks DaveT)[ Edited by nebulousd on Date 01/15/2004 ]
...any more suggestions on this topic?
Nebuloused
You may want to refigure your $1200 payment each quarter. That is 12% per quarter on the 10 grand.
I always ask my investors what security and rate of return they need. I have payed 2% a month for hard money without security. I was handed a hand full of 100's and asked to return 100"s. He asked no questions about the property as when he got to know me he knew I knew what I was doing. There are a lot of ways to structure a loan like this. Just do not give too much security. I kind of want to put up $20000 worth of stuff for a $10000 loan
Good LUCK and Thank You
Hope this helps some
Ted Jr
Nebulous -
I get your concept, thanks, however I believe your calculations were meant to read $150 per quarter over 2 years. $1200 per quarter over 2 years would be pretty steep on a $10K investment.
Quote:Nebulous -
I get your concept, thanks, however I believe your calculations were meant to read $150 per quarter over 2 years. $1200 per quarter over 2 years would be pretty steep on a $10K investment.
jonesoe30,
Interest rates are nearly always understood to be annual percentage rates. The calculation is 12% each year for two years, meaning a $300 payment each quarter and a $10000 payoff at the end of two years.
typo....sorry about that. 300 bucks quarterly, not 1200.
Thanks DaveT
A couple of years ago, a real estate investor friend got a good buy. But his money was tied up. I let him borrow the money to buy the house and he fixed it up himself. When it was done the house was sold and we both came out winners. We factored in the sales price, price of improvements, and after market value. We agreed on a split of the sales price backing out each of our upfront money. We both came out winners. I have found alot of people who either do work or who have money. It is usually a win win situation for both. Lori
I have a newbie question:
Who goes to lenders for financing if they are charging 12%? Buyers with horrible credit? Who else? What else? I'm very curious what justifies that kind of a rate in the market these days.
thanks for any responses.
-J
A lot of rehab projects do not qualify for a normal loan. So you have to work with a lender who will do them.
Also most hard money lenders will move fast. If you have to move fast you can. A. Pay a higher rate or B. not do the deal. Which would you do?
Hi, So many many ways to work.
Lets take my favorite. This way allows me the most control of the funds with no lender looking over my shoulder. I like to keep lenders seperate and not participating in profits. If you allow this you will see the greed build up deal by deal and what began as a workable arrangement turns into an impossible one as the lender imparts more and more value to the money he lends. Also if you allow them on title, profits come in with the check made out to all parties and suddenly the lender changes the deal and you get shorted or your share reduced. After all says the Lender its my money that makes it all possible.
Ok. I borrow for a purchase or a fund to do a remodel. Or to put up a deposit on a land assembly. I secure the borrowing with a piece of property and I hold the borrowing at about 50% of land value.
Sometimes I will be a broker in transaction. I arrange the loan for a period of time usualy 18 months. The interest rate at the present time is 10% and if I am a Broker in Transaction I receive a 2% commission. In exchange for this interest rate I give a full recourse on the note and I am named as Trustee on the Deed of Trust (he who does the foreclose sale etc.) As you can see I stand to make money by running the foreclosure and if I really like the property I will bid it and buy it. The Lender gets paid off on completion of foreclosure sale. So the Lender does not worry he is safe and secure. The Borrower loves it cause he gets all my highly skilled help and experience. I like it because I get to stick my nose into all the good deals that occur and there are so many other ways to make money on that transaction. Future Sales Commissions. Future Mortgage Commissions. Help in Construction. Help in deal structure and in the course of construction or rehab we moniter the job and interject as needed.
Even so there seems to be an on going requirement to change the lenders every three or four deals. I guess greed is a part of the human psy that we just have to work along with.
There now. Sorry to be wordy, Do not know how to explain it otherwise. I am sure you can see the many variants. Especialy in assemble of properties. Utilization of Options to control multiple parcels as you gather them together. Each additional one increasing the overall value in a geometric progression. Yip I am back in school again. Shades of Malthus. Lots of fun.
Figure fumble find. Lucius
This would be a good fit for a rehabber. Start out by offering 3 points and 10% interest. All terms are very short, however long the rehab takes, (for us 6 months max, but more like 3 or 4 months). For $10k at 3 months he would get $550, 4 months $633 and 6 months $800 in interest (it's early, so recheck my figures!) Might not sound like much, but if its $100k, just add zeroes to the above numbers. You get the money up front to act on fast-moving deals, you probably would get a no-money down deal (tell him he gets his points and interest after the rehab at closing), and he gets a great return on his money.
I am drumming up private investors right now. Not an easy task, at times, but it sounds like you have an excellent opportunity and an eager investor. congrats and good luck!
[addsig]
make sure you are securing these private investors through word of mouth. If you solicit the public through ads and such like some suggest, you are in violation of securities laws, and are taking serious risks.
Also, do not pool funds of two or more investors, as that puts you in the same precarious situation.
One investor per deal, via word of mouth. Perhaps the only way around the public soliciation issue is to give a seminar showing people how what you are purporting is possible. Then if you notice interest in certain individuals, or they approach you of their own will, you would be in compliance.
Anyone else have a comment on this issue of securing private cash to fund deals?