@Midwest, what are you charging? Any points? Interest only with a balloon at project completion?
Thanks!
We don't charge points, but we charge an application fee. I (not an attorney) was concerned about usury laws. It's not worth my effort to do a 3-6 month loan without an application fee. Application fee is typically 6-10% of the principal depending on the size of the deal. After 2-3 months, we charge 1% to 1.5% per month.
Our typical loans are balloon and interest when the property sells.
These deals are structured as loans, but they might as well be equity deals as we bear the risks of ownership. Don't let the flippers convince you otherwise unless they are putting up substantial dollars. If these deals were credit worthy, they would be borrowing at the bank. There are some truly unsavory people trying to take your money, so remember the first rule is don't do bad deals. I'd rather miss a good deal than take a bad one.
The other party in this finds the properties and fixes them up. Typically they have little or no money in the game. We have offered to do a split at 33% - 50% of the profits and they don't like that idea.
We have one small deal where we loaned long term on a property. We are in first position, amount is small, and the rest is owner financed. For that deal, we charged a straight 10% or 12% payable monthly.