Deal Structure Advice When You Have Multiple Investors Lending On One Property

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Deal Structure Advice When You Have Multiple Investors Lending On One Property

Dustin DuFault
Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes

Good afternoon BP!

I have two investors (one family, one friend) who would like to fund a flip I have under contract via notes @ 10% interest.

What is the best way to structure these deals when you have multiple investors? The property is to be purchased in my LLC, and I will fund the repair costs.

Thanks for your help & advice, as always!

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Crystal SmithPro Member
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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
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Originally posted by @Dustin DuFault:

Good afternoon BP!

I have two investors (one family, one friend) who would like to fund a flip I have under contract via notes @ 10% interest.

What is the best way to structure these deals when you have multiple investors? The property is to be purchased in my LLC, and I will fund the repair costs.

Thanks for your help & advice, as always!

 2 ways we've structured deals like this in the past:

  • They provide you a loan secured against the property.  The loan would show the % interest each investor has in the note (Naturally there's more detail but this is basic & common)
  • Add the lenders to your LLC as members. LLC operating document can reflect the capital contribution of the LLC members (This could include the loan from your investors) The LLC operating document can also reflect the return for each member. The LLC operating document can be accompanied by a note. (Again- I've simplified it here. Devil is in the detail & you should consider consulting an attorney)
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  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Dustin DuFault:

    Good afternoon BP!

    I have two investors (one family, one friend) who would like to fund a flip I have under contract via notes @ 10% interest.

    What is the best way to structure these deals when you have multiple investors? The property is to be purchased in my LLC, and I will fund the repair costs.

    Thanks for your help & advice, as always!

     2 ways we've structured deals like this in the past:

    • They provide you a loan secured against the property.  The loan would show the % interest each investor has in the note (Naturally there's more detail but this is basic & common)
    • Add the lenders to your LLC as members. LLC operating document can reflect the capital contribution of the LLC members (This could include the loan from your investors) The LLC operating document can also reflect the return for each member. The LLC operating document can be accompanied by a note. (Again- I've simplified it here. Devil is in the detail & you should consider consulting an attorney)
    312-681-7487
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  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    11y

    Thank you Crystal! I appreciate your input.

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  • Bill P.
    Investor | Syndicator | Instructor · Cincinnati, OH · Member since 2008 · 435 posts · 198 votes
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    @Dustin DuFault

    @Crystal Smith is correct. But as someone that has plenty of investor deals, the easiest way is to make 1 investor a first mortgage holder and the other a 2nd mortgage holder. However, this comes with a little risk if things don't go well as the 1st mortgage investor gets paid before the 2nd mortgage investor. To compensate for this risk, after explaining the details to both investor, see if 1 will be a 1st mortgage lender at 9% and the 2nd mortgage holder at 11%. You still have a blended rate of 10% but you have explained the process to them and allowed them to choose. Just an idea.

    We use LLCs now for most of our investment props but you need to know the additional costs for tax prep, filing fees and ongoing expenses for that option. With my background of being a public accountant, this part is a whole lot easier than it is for most people.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Dustin DuFault

    Depends on your state.. many states do not allow multi beneficiary NOtes like @Crystal Smith suggest however I do know in her state it is permissible. and In CA its common

    In Oregon it is not legal at all.

    So check your state regs and if multi bene is permissible then that is by far the best way to do a deal like this among friends and family.. other wise just use usecured Prom notes.

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  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    11y

    Thanks all! I went with a 1st and 2nd position note - the only way my lawyer thought we could do the deal in Florida. My father did not mind being in 2nd position, and the deal has enough equity to be fairly low risk for both parties --- and I have enough money to back them up as well. So I think that's how we will move forward! Thank you for your input!

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