First time lending: $75k for 7 months, and the paperwork outlasted the deal
I've been planning a first rental purchase for about a year and the money has been sitting in a savings account earning something embarrassing. A flipper I know through a local meetup needed $75k on a small two bedroom cottage in a working class pocket of a mid size market. He was doing his fifth deal, cosmetic work only, bringing his own rehab cash. So I lent instead of buying, which I did not plan on and would do again.
Terms: $75,000, first position, interest only at 10.5 percent, 2 points, 9 month term with one 3 month extension option at another point. I paid $550 for my own appraisal instead of taking his number, and it came back $128,000 as-is. That put me at 59 percent of as-is value with no construction holdback to manage, which is the only reason I felt okay doing this as my first one.
He paid off in month 7. Interest came to about $4,594, points were $1,500 collected at closing, so $6,094 gross. My attorney charged $1,200 to draft the note and the security instrument and coordinate with the title company, so call it $4,894 net on $75k over seven months. Borrower paid title, recording, and the lender's title policy.
What nearly broke it was me. I originally agreed on a handshake and a promissory note he emailed me, because he seemed organized and I did not want to look difficult. My attorney asked what I intended to foreclose on. Whether you get a mortgage or a deed of trust depends on the state, and there may be licensing rules for lending depending on where you are and how often you do it, so that part needs an actual attorney in your state.
What I'd keep: my own appraisal, first position only, and no holdback until I understand draws.