I’m assuming that one of the ways that real estate investment firms/investors are able to acquire so many properties and grow their business is from private lenders/investors lending their own capital to the firms/investors which in turn use for this private capital for down payments on properties.
My question is, on average, what kind of rates do these private loans carry? Does the loan amount affect the rates in this type of lending? What are some pros and cons of using this type of lending?
Also, examples (hypothetical or not) would be great as well.
Longterm partnerships are usually 12-14%. Often mortgage-backed notes. If they really trust you, they won’t have it backed by a lien.
Sometimes you go by the project and investors can earn 25% or more. If it’s a per-deal, they won’t interest and just look for a profit. Since there are usury regulations, there’s a limit to how much an investor can charge on a note. http://en.wikipedia.org/wiki/Usury
I was under the impression that the rate would be lower, along the lines of a high risk mutual fund or something like that. If the rate is 12-14% why not just borrow from a hard money lender?
Wouldn’t a private lender/investor find a pretty well guaranteed 8-9% rate secured by real property attractive?