How Much Does Money Cost?
The Costs of Money Vary
Some Cost Options To Consider
Money Borrowing Philosophies
The Costs of Money Vary
How much do these different sources of money cost? They will vary, and most of them, as in any business transactions, are negotiable. How much does your family cost you? That’s negotiable.
How much is it going to cost you at the bank? Negotiable. What’s prime rate, and can you borrow under price, or at prime, or tow over prime? Can you arrange an interest only loan, for a short, or long duration? Nearly all alternative means of raising funds are more expensive than bank financing, where unsecured debt can cost only from 8% to 12%, if you can get it. Banks however usually are lending against assets, not deals.
Personal asset liquidation – does it cost your any money? How much are your credit cards? What the range. What’s the lowest credit card you know of? 8.9%, up to 21% or 26%?
And the nontraditional sources. How much is money from a friend going to cost? Negotiable. I that expensive? It could be, or it may not be. Think beyond what you usually think. Trust yourself. Think of the people that you might go to for money that you never have before. Stretch your comfort zone, right now, Can you picture a situation where you can present a money making situation to someone in your family, or to a friend, and you know they have money sitting in C.D.’s which are making a very small rate of return? You can offer them a better deal than what they’re getting now, just by improving on their current position. Can you see where it would make money, for both of you? Go ahead and ask. If they say no, at least you got some practice for your next request.
How about making an appointment with your doctor, or dentist? Medical professionals may have cash invested poorly or pension funds that need to be placed somewhere safe. What interest rate could you offer them which would hit their hot button? Some people make appointments with doctors and dentists just so they have their personal attention. Is the cost of that office visit worthwhile?
Remember, almost everybody is intrigued by real estate deals. While they might be a bit leery, usually they’re interest by it because they know there’s money to be made in real estate. And the further you go from the real estate community, the better a deal you'll be able to negotiate for yourself with a money partner.
Sometimes investor partners will accept a certain rate of return on their funds, and sometimes they want a certain percentage of the profit, like up to 50% of it. That may be very expensive money, but with no credit check, it may be easy money to get.
Let’s talk about the professional real estate money lender. How much is
that going to cost? It can be expensive, like high credit card interest of
18%. The range can be for interest rates from 10 to 24%, and loans to
about 50%, or sometimes 60 or 65% loan to value. Sometimes there are
points, and closing costs, or prepayment penalties. You may have to
qualify. The property will probably need to qualify, through an appraisal
which will determine the maximum which wan be loaned on the property.
Real estate money brokers also may charge up to 24%, with up to 10 points, and prepayment penalties. It may be possible for you to get up to 75% loan to value if you have your own money invested into the deal. Equity based financing can cost from 18 to 50%, based on the Rate of Return. This kind of money can be expensive, but it is negotiable.
The point is, there is a range in the cost of funds. Nothing is set in absolute concrete, so when you’re looking at a deal, and you’re trying to analyze it, you know there is a certain cost of funds.
Finding Money - Nontraditional Sources - Chapter F (continued)