Private Money Question

[Angel Dross]

Hey I'm a newbie and I'm Interested in the BRRRR strategy, My question is what type of agreement do you typically see with private money as far as interest and duration of the loan etc.

[Marcus Auerbach]

Hi Angel, welcome to BP! The agreement depends a bit on who you are working with - I would say family might be a bit different than someone from your secondary circle. Generally the funds can be secured or unsecured. Secured means the investor has the right to take the property, if you stop paying. Unsecured means they only have your promise to pay them back. The latter I typically see with family money and all you may need is a promisory note signed by both of you (I suggest to have a written contract also with family money - two years later you may have slightly different recollections about some detaisl), most other PM investors want to have a lien on the property so they can fall back on it as collateral if you default, which then drives the paperwork you need. 

The irony is that many of your potential sources will perceive a lower rate more favorable, because they associate lower risk with it. Society has trained us to think that a 15% rate must be risky, while a 5% rate must be safe. So don't offer too much. The middle ground 6% to 8% seems to be popular.