What should an owner-operator moving from ownership to lending on a flip check before wiring $92k at 11 percent
Here's a scenario worth working through: an owner of a few small buildings has $92k sitting idle after a refinance and doesn't want it parked in savings for another year. A local operator who does 4 or 5 flips a year, mostly 1950s three bedroom houses in the $150k to $230k range, asks the owner to fund the next one. The terms on offer: $92k first position, 11 percent interest only, 2 points at close, 9 month term with one 3 month extension for another point. Purchase price on the target house is $118k, needs about $35k of work, and comps out around $205k when done. So the loan is roughly 78 percent of purchase and about 45 percent of projected finished value. What the lender actually has going in is the borrower's word, a photo of the MLS sheet, and a printout of three comparable sales. That's a thin file for a first loan. What needs answering before any money moves: who writes the loan documents, who engages the title company, whether the full amount is disbursed at closing or held back and released against completed work, who verifies the work got done, and what the process looks like the day payments stop, since that's usually a slow court process regardless of jurisdiction. An owner with real estate experience but no lending experience will often find 11 percent plus 2 points beats what the capital could earn deployed in the owner's own portfolio, which is exactly the kind of return that deserves scrutiny rather than acceptance on its face. The real decision is whether to do this deal at all with proper documentation and disbursement controls in place, or spend time learning the mechanics of private lending before putting capital out with anyone.
