I have a buddy that does rehabs. I have been speaking to him regarding lending him some funds (half total of the project) to complete a specific rehab.
I believe he has quite a few deals going at once and has completed quite a few over the past few years (50+).
Deal specifics:
Kansas City, MO
Acq. Price- $35-$38k
Total rehab work - $15k
FMV- $110-$115k*
Will list at $105k for a quick sale
I will invest approx. $30k
Says, needs at least 90 days from start to finish because of the title seasoning requirement for FHA loan (for the buyer).
I will get docs, pictures, and remain in the loop along the way (according to him).
2 questions-
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What is an average and above average interest rate I should negotiate with him? He was telling me around 14% and I was thinking more along the lines of 16%.
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What is the best way to structure it so that I can protect myself?
Secure by deed of trust on property and have written agreement between myself and him/his company. Other than that, what else should I do to protect myself?
Input is appreciated.
He is a “buddy” and you’re quibbling over $75? Hmmm…I understand that it’s business and all but…?
My suggestion - either split the difference at 15% or make it up in volume.
You can have any sort of a written loan agreement, get it notarized, and record it as a lien against the property. Make sure you record the lien!
Keith
Well not really “quibbling” over it, however, I would like to see what an average expected return is, and if I am doing business in the future, a 2% difference on $50k+ is not peanuts.
By the way, I do not know where you got the $75 figure from.
Any other suggestions for protecting my investment besides having a lien on the subject prop and a written agreement?
most of the private money and hard money loans I have had have been either 12 or 14%, however I have also been charged 3 or 4 points for origination
You may choose to consider, for starters, weather or not you feel a need to “partner” with the buyer or would you rather simply “lend” him the funds to do his deal. One tends to be far more streamlined and carries with it more specific security for you. Also consider the idea of “leveraging” someone elses funds. Good luck and have some fun rehabbing.
Anyone else have any input on this deal and the “average” expected ROI on private money?