Private Money Avg Rates

Edison12296

New Forum Member
Registered
Aug 17, 2017
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#1
Dear fellow investors,

I've have been approached with a offer (and open to others) to lend my RRSP money (arms length mortgage) but that's not typically part of my investment strategy. I am not familiar with this strategy as our portfolio has been buy and hold. (Rentals)

What would be a range the interest rate for let's say a property with a LTV around 70 - 80% in a 2 year term ?

Your thoughts or comments will be appreciate.

Cheers

Edison
 

ThomasBeyer

Senior Forum Member
REIN Member
#2
Lending rates and risk of default is highly correlated with the FICO score of the applicant. What is it ?

Where is the property ? Income ? Why can't they use a bank at sub 3%?

As a lender you must be comfortable owning the asset if it comes to it ie go to court and foreclose on it. Are you willing and able to do that? If not, don't lend money, in cash or RRSP.
 
Last edited:

Edison12296

New Forum Member
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Aug 17, 2017
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#3
Good points Thomas
I agree I would only land money to properties that I would be interested in owning.
Typically those interested in borrowing are flippers, second mortgages or people having challenges to get a first mortgage approved.


Lending rates and risk of default is highly correlated with the FICO score of the applicant. What is it ?

Where is the property ? Income ? Why can't they use a bank at sub 3%?

As a lender you must be comfortable owning the asset if it comes to it ie go to court and foreclose on it. Are you willing and able to do that? If not, don't lend money, in cash or RRSP.
 

Tina Myrvang

Client Care Specialist
Staff member
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Nov 15, 2010
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#4
One thing I learned when I was a lender was make sure the value is there. I lent on value based on the work they would do with the money. My borrower had a heart attack and was not able to do the work and when we foreclosed the value was low and we were bumped by the first lender. $130K mistake we will never get back.
 

Edison12296

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Aug 17, 2017
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#5
Indeed Tina,

It can really come back to bite you when the worst comes to worst. (Unfortunately it was your case)

Sadly lesssons learnt that hit the pocket are the ones we never forget


One thing I learned when I was a lender was make sure the value is there. I was lent on value based on the work they would do with the money I lent them. He had a heart attack and was not able to do the work and when we foreclosed the value was low and we were bumped by the first lender. $130K mistake we will never get back.
 

Tina Myrvang

Client Care Specialist
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Nov 15, 2010
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#7
Indeed Tina,

It can really come back to bite you when the worst comes to worst. (Unfortunately it was your case)

Sadly lesssons learnt that hit the pocket are the ones we never forget
I'm trying to forget LOL. With every year it gets easier....
 
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JROC

Inspired Forum Member
REIN Member
May 27, 2008
50
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South Surrey
#8
I have done a few private money lending deals over the course of a few years. All on residential properties that I would own myself.
If you are lending on a 1st mortgage probably looking at 6.99% - 9.99% with a 1-2% lender fee or min $1000 lender fee. If its a 2nd mortgage probably looking around 10% - 14% with a 1-2% lender fee or $1000 min. I mainly do 2nd mortgages at 12% and 2% or $1000 fee. LTV is 70% give or take 1-2%. If you want to chat more message me and I can give you my contact info. I am always looking at more deals or JV with someone.
 

David Wilson

New Forum Member
REIN Member
Oct 26, 2017
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#9
The rate you charge is the rate you charge, it's your money and you're assuming the risk of losing part or all of it so the rate of return needs to compensate you for the risk involved to your satisfaction. Some lenders may look at a deal and say 10% while others look at the same deal differently and say 15% there is no hard fast rule other then -> The maximum legal rate in Canada is 60% anything higher is considered criminal. (As per section 347 of the Canadian Criminal Code).

Some things to consider would be how much to I stand to gain from this deal? (is it enough to make me want to move from my current strategy? what other options do I have with this money and how much could I make there? (is the risk higher or greater?)

1) Does the deal make sense regardless of the borrowers information?
Loan to Value
Loan Position
Location of Property
Zoning of Property
Planned Use of Property
Condition of Property
Marketability of Property
Current Market Conditions in the Area

Are you going to be in 1st position on the property or 2nd? (I would not generally consider anything after 2nd unless I can verify a very very low LTV and even then the question would be why not refi the 1st or 2nd? would need to have solid make sense answers to these.) If you are in 1st position you will be in a good position should default happen. If you're in 2nd position be prepared accept that the 1st mortgage holder will control the default / foreclosure process. They do not need to consider your position at all and generally will only look to minimize the loss on their side. Also keep in mind that when a property sells as a foreclosure it will not bring in anywhere near market value so if the LTV is tight you will likely loose your shirt. This assumes that there will be a loss of some sort just a matter of size. If the LTV was low enough to avoid losses the owner would have likely just sold the property to max. out the personal money they would get from the sale. You could take over the 1st if you are in 2nd position to protect your investment but also realize there are a ton of headaches that come from this as well, utilities, taxes and property expenses are usually covered by the 1st mortgage holder during the default process as a lot of the times the owner has either walked or has simply stopped paying everything.

2) Would you lend to the borrower?
Demographics of Borrower
Current Address & Homeowner Status / History
Employment Status / History
Credit Status / History
Judgements / Public Records / Inquiries
Does the demographics of the credit file match the demographics given by the individual?
Can the Borrower provide verification documents for information given?

How long has the borrower been employed in their current position? Are there any economic factors to be aware of their industry of employment? How long have they lived at their current address, are they currently a renter or a homeowner? What is their debt load like? is there a lot of recent inquiries? how is their payment history? Are their cards maxed? Are there signs of financial strain on the credit report? (multiple max'd cards with newly opened cards or inquires) Do they have any debts or obligations outside of the credit file? (support payments, family loans, mortgages etc...)

At the end of the day it's your money and your decision what you lend it out at, just keep in mind everyone is nicest when they want to borrow money from you and that can change in an instant. Everyone pays until they don't...

Verify, Verify, Verify.

Cheers,
 

MikeMilovick

Inspired Forum Member
REIN Member
Mar 15, 2008
506
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18
Waterloo, Ontario, Canada
#10
Some great information here. Based on my own experience, I would also make sure there is a renewal fee. So if it's a two year commitment, at end of two years, borrower pays an additional charge for privilege of renewing. Tied into that, after the initial term, I would re-set the interest rate to something higher than original rate - to encourage repayment.

Sent from my BBB100-1 using myREINspace mobile app
 
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Carla Reis

Inspired Forum Member
Registered
Aug 24, 2017
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51
Kelowna
#11
The rate you charge is the rate you charge, it's your money and you're assuming the risk of losing part or all of it so the rate of return needs to compensate you for the risk involved to your satisfaction. Some lenders may look at a deal and say 10% while others look at the same deal differently and say 15% there is no hard fast rule other then -> The maximum legal rate in Canada is 60% anything higher is considered criminal. (As per section 347 of the Canadian Criminal Code).

Some things to consider would be how much to I stand to gain from this deal? (is it enough to make me want to move from my current strategy? what other options do I have with this money and how much could I make there? (is the risk higher or greater?)

1) Does the deal make sense regardless of the borrowers information?
Loan to Value
Loan Position
Location of Property
Zoning of Property
Planned Use of Property
Condition of Property
Marketability of Property
Current Market Conditions in the Area

Are you going to be in 1st position on the property or 2nd? (I would not generally consider anything after 2nd unless I can verify a very very low LTV and even then the question would be why not refi the 1st or 2nd? would need to have solid make sense answers to these.) If you are in 1st position you will be in a good position should default happen. If you're in 2nd position be prepared accept that the 1st mortgage holder will control the default / foreclosure process. They do not need to consider your position at all and generally will only look to minimize the loss on their side. Also keep in mind that when a property sells as a foreclosure it will not bring in anywhere near market value so if the LTV is tight you will likely loose your shirt. This assumes that there will be a loss of some sort just a matter of size. If the LTV was low enough to avoid losses the owner would have likely just sold the property to max. out the personal money they would get from the sale. You could take over the 1st if you are in 2nd position to protect your investment but also realize there are a ton of headaches that come from this as well, utilities, taxes and property expenses are usually covered by the 1st mortgage holder during the default process as a lot of the times the owner has either walked or has simply stopped paying everything.

2) Would you lend to the borrower?
Demographics of Borrower
Current Address & Homeowner Status / History
Employment Status / History
Credit Status / History
Judgements / Public Records / Inquiries
Does the demographics of the credit file match the demographics given by the individual?
Can the Borrower provide verification documents for information given?

How long has the borrower been employed in their current position? Are there any economic factors to be aware of their industry of employment? How long have they lived at their current address, are they currently a renter or a homeowner? What is their debt load like? is there a lot of recent inquiries? how is their payment history? Are their cards maxed? Are there signs of financial strain on the credit report? (multiple max'd cards with newly opened cards or inquires) Do they have any debts or obligations outside of the credit file? (support payments, family loans, mortgages etc...)

At the end of the day it's your money and your decision what you lend it out at, just keep in mind everyone is nicest when they want to borrow money from you and that can change in an instant. Everyone pays until they don't...

Verify, Verify, Verify.

Cheers,
Excellent ! Thanks for sharing your detailed thought process.

Cheers


Sent from my iPad using myREINspace
 

KeithnCalgary

Mortgage Associate & REIA
REIN Member
Mar 21, 2011
123
55
28
Calgary
www.pmpcalgary.ca
#12
The assessment of the people that you are lending the money too is critical to the process. Can they afford to make the payments based on the interest rate you want to charge? If this is your first time then you need to have an independent lawyer that represents you int he process and that the borrower pays the costs for. You should also request the same documents that your mortgage broker would ask for if you yourself were applying for financing. If the borrower says you do should not need them or they cannot provide them then they are not the borrower you want. You could also have a mortgage broker experienced in private lending represent you at the borrowers expense to pay the broker fees.

Keith Uthe
Independent Mortgage Specialist
Mortgage Alliance Enrich Mortgage Group
 
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