Structuring/terms of small unsecured promissory note
Hi BP!
I'm new to investing and have joined my local REIA. Learned a lot and have done some great networking to help me get into this business and learn.
I came across an opportunity to work with another investor in our group to provide a private loan. Investing is somewhat new to me, although I've leanted a lot, but lending is even newer! I'm comfortable with the people, their experience, and their deal. I just want to make sure my bases are covered so I can get repaid and to know I'm getting a good return.
I need help structuring the Promissory Note and verbiage. It's a small loan, $10k, that has a Promissory Note tied to a current flip they're almost done with. Expects to go on market in 1 week. Loan would be for 6 months.
My questions are:
1. This would be unsecured, first lender for entire project has 1st mortgage. And my Promissory Note wouldn't be recorded. It says in our Note that I will be repaid in full upon sale of this property. Is that enough to protect myself? Should I have other wording in it or take other actions to better protect myself, like have the property as collateral (even though I'm not the main lender) or a Personal Guarantee (loan is to their LLC)?
2. What is a typical Interest rate for this size loan that is unsecured and for 6 month terms? Interest only, no points, and no payments. Just principle and interest repaid when property is sold (up to 6 month terms) and then it jumps to the legal limit of 18%.
Any help or advice on structuring this or wording it would be greatly appreciated!