Most of this guide will focus on short-term loans for investment properties, but we’ll mention the rates for DSCR rental loans as well as commercial real estate long-term loans towards the end. In March 2022, private lending interest rates for short-term loans ranged from 7% to 9%. By June 2022, the range was 8.5% to 10.5%. At the end of August, it was 9.5% to 13%. As of November 2022, the range hasn’t changed much since the end of the 3rd quarter. In the 4th quarter, interest rates for private lending range from 10% to 13% for most lenders. The Federal Reserve just increased interest rates by 75 basis points on November 2nd, and it takes a little time for the increases to affect private lending rates.
Some Private Lenders Have Not Increased Rates in 2022
Some lenders on our platform have not changed their interest rates at all this year. For example, Gelt Financial, a lender in South Florida that focuses on commercial real estate bridge loans nationwide, has been lending at around 10% to 12% interest over the past several years.
Rehab Financial Group, a direct lender that offers 100% financing for residential rehab projects in 38 states, was always lending in the range of 11% to 13%.
Another 100% financing rehab lender for Texas residential properties, CR Lending, has always been priced at 12.25%.
Some California Lenders Still Lending under 8%
In California, we know a few private lending firms that are still lending in the 7-8% range, but only for real estate investors that have a lot of equity. For example, SDC Capital, based in L.A. County, can go as low as 7.5% for stabilized multifamily properties in California metropolitan areas, but only up to 50% loan-to-value. For all other loans up to 65% LTV, they would likely quote in the range of 8.5% to 9.0%, plus 1 point.
Security Financial Services, based in San Francisco, used to be in the range of 6.75% to 7.25% for properties in the Bay Area. Now their rates range from 7.13% to 9%, but the higher end of that range is mainly for multifamily rehab projects.
A lender based in Orange County, Diversified Mortgage Company, currently has their interest rates set at either 7.75% for a 2-year loan term, or 7.95% for a 4-year loan term. Earlier this year they were half a percent lower on the rates. They will only consider multi-tenant (at least 2 units) properties in California urban areas, and the loan-to-value cannot exceed 65%.
So it’s still possible for California real estate investors to get rates in the 7’s, but only up to 65% LTV, and most lenders are only considering borrowers with strong financials.
Cost of Capital Affects Private Lending Rates
The interest rate increases for private lending are driven by the lender’s cost of capital. The lenders that haven’t changed their rates this year are getting their capital from individual investors and family offices, or they manage a debt fund without any leverage. The majority of private lending shops today are selling their loans to the secondary market and typically need a 1% to 2% spread.
The secondary market used to buy loans earlier this year for 6% to 7% are now likely buying at 9% to 10%. Therefore, the lenders that sell their loans have to charge 10% to 12% in order to make a profit.
A few lenders that have increased rates at exactly the same amount as the federal funds rate. These lenders don’t sell their loans, but either manage a fund with leverage, or they put all of their loans on a bank credit line. Last month, the total rate increase was 3% for the year. With this month’s rate hike, it’s 3.75%. So if the FED increases by 0.50% in December, the lenders’ minimum interest rate will likely go up by 0.50%.
Interest Rates for DSCR Rental Loans
Long-term rental loans, also known as DSCR loans, are for small multifamily and residential investment properties. Most of them are 30 year terms, but many lenders now offer a 5 or 10-year loan term. In our third quarter update 3 months ago, the interest rates for DSCR loans were 6.75% to 8.5%. From what we’ve seen, the DSCR interest rates are now ranging from 7.5% to 9.25% for most lenders.
Interest Rates for CRE Bridge Loans
One sector of private mortgage lending has lenders that fund commercial real estate (CRE) bridge loans over $3,000,000. Those lenders tend to set their rates at a certain spread over an index tied to US treasuries because that determines their cost of capital. It used to be LIBOR, but now lenders use SOFR (Secured Overnight Financing Rate) which is currently around 3.8%.
For a purchase or refinance bridge loan, some of the CRE lenders in our network are currently charging 5% to 6.5% over SOFR, so that equates to an interest range of 8.8% to 10%. For rehab or construction loans, it could be 1% to 2% higher.
Interest Rates for CRE Permanent Financing
For commercial real estate investors that need to refinance into a long-term loan, the interest rates appear to be ranging from 6% to 8%, from what we’ve gathered. This is offered by banks and credit unions, not private lenders. At this time, there aren’t many non-bank lenders that offer permanent financing for commercial real estate, other than multifamily.
Interest Rate Prediction for 2023 Q1
So far this year, the Federal Reserve has increased rates by 3.75%. We believe they will increase again in December 2022 and February 2023, adding another 1% with both of those rate hikes. Based on that, here’s our prediction for where short-term private lending interest rates will be by March 2023.
We believe the new private lending interest rate range will be 10% to 14% in 2023 Q1, with the average rate being 11.50% for the majority of loans secured by both residential investment properties and commercial real estate. We’ll see what happens, and we’ll provide another update in February.
How to Find Private Lenders (companies) and Current Interest Rates
It’s been a very difficult quarter for private lending, and many lenders in our industry expect even more pain in 2023. That said, many real estate investors still need private lending to get deals done, and they are coping with the new reality as best as they can. If you’re seeking private financing for a real estate deal and if you want to keep up with private lending interest rates, use our website Private Lender Link.com as a resource. There are two options for using our platform.
Option 1: Browse Lenders
Search on our site for direct lenders. All lenders have a very detailed profile with information about their lending guidelines, rates, fees and much more. Make contact with each out directly. Send an email, call, or visit their websites. First select a loan type, then enter the state or metro area where the property is located. A few loan types will show lenders that provide short-term bridge loans:
- Private Money
- Hard Money
- Residential Bridge
- Residential Fix & Flip
- Residential Rehab & Rent
- Residential Ground-Up Construction
- Commercial Bridge
- Commercial Property Value-Add
- Commercial Ground-Up Construction
Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.