Ask an investor what they paid for their last private money loan and most will answer with one number. The rate. Nine and a half, eleven, twelve — whatever it was, that's the figure they remember and that's the figure they shopped on.

It's the wrong number, and in my experience it is the single most expensive mistake in this business.

Every week this runs long is another month of interest against a fixed sale price.

A private money loan has at least four moving parts, and the interest rate is only one of them.

Points. Origination points are charged up front, as a percentage of the loan. Two or three points is real money handed over on day one, and it does not appear anywhere in the rate you were quoted.

Term. These loans are short — months, not decades. What matters isn't only what the money costs per year, it's what happens on the last day of the term, when the balance comes due.

Extensions. Rehab work runs long. It runs long on almost every project, and the question that decides whether that's an inconvenience or a catastrophe is whether your loan can be extended, what an extension costs, and whether it's automatic or granted at the lender's discretion.

Prepayment terms. Some loans carry a minimum interest period. Finishing early doesn't always mean paying less, and if your whole plan is a fast flip, that clause deserves a careful read.

Two lenders quote the same deal. One is at 9.5%, the other at 11%. Obvious choice, right?

Now add the rest. The 9.5% loan charges three points up front, runs six months, and has no extension option written into it. The 11% loan charges one point, runs twelve months, and lets you extend once for a fee you can see in advance.

If everything goes perfectly, the first loan is cheaper. If the contractor is four weeks late — and I'd encourage you to think honestly about how often that happens — the first loan comes due before the property is ready to sell, and you're negotiating from a position of no leverage with a lender who has no obligation to help you.

Those numbers are an illustration, not an offer and not a market quote. Every lender, every deal and every state is different.

There is one question that surfaces all of it, and it takes about four seconds to ask:

A good lender answers it plainly, because they've done the math already. A lender who gets vague at that question has told you something important — and they told you before you were committed instead of after.

I keep a short list of the mistakes that cost investors the most money on private money deals. This is the first. The other four are the exit that was never real, the rehab budget that assumes nothing goes wrong, calling a lender after the deal is already under contract, and going quiet when the timeline slips.

All five are written down, along with a step-by-step of how a private money deal actually runs from start to close. It's free and it takes about ten minutes to read.

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