I have found a person who is willing to do private lending for my first fix and flip. The individual is going to fund 100% of the purchase. From there I'll be funding the rehab. We have already negotiated percentage and terms including signing a promissory note and having the lender be first lien position on the SFR property.
The property is an REO. At this time I would not be able to show enough liquidity (proof of funds) until my private lender funds me.
I do have an LLC setup that I use for consulting and would be able to run everything through that entity. I have not set up an REI entity up at this point.
I want to ensure, I protect my lender, myself, and the deal.
If anyone can share the process/mechanics of the actual funding process including:
1) Does private lender fund the project ahead of closing?
2) In the Contract with Seller if they ask for proof of funds, how do you show that?
3) Is it easier simply to have both parties (private lender and myself go on the contract)?
Any guidance, process, and/or insight would be greatly appreciated!
well you can do it a number of ways.
but the most common is
you offer on the property its accepted subject to your POF.. if you have your lender in tow.. the lender writes a letter and says he is going to fund.. SEller then may want to have this lender since its not a company provide a bank or brokerage statement showing he has the cash ready willing and able to fund. so that's first.
second you open escrow like any other transaction.
you tell the title company that you have a private lender and they will prep the trust deed.. you bring in the note.. Most title companies if your just one off buyer wont do the note for you.. they do them for me but we are a top tier client.
So you have the note sent to title they prep the closing statement and deed and put your note in the file as well.. when its ready to close the title company is going to contact your lender provide wire instructions and tell them how much they need to wire into close.
you going to either go in, or have a mobile notary come to you.. sign notarize the deed of trust ( Notes are generally not notarized or need to be although does not hurt to do it but like I said not common and does not make them any stronger to notarize them)
you sign... your lender wires in the dough seller signs returns their docs.. and next day or so when all docs are together it closes and you now own it subject to the loan.
the title company will then send the Original signed note and copy of HUD etc to your lender.. you get copy of hud.. your the owner lender is the bank. simple done every day.
on the West coast we DONT use attornies to close and we do NOT do wet closings I have not been to a closing basically in 25 years.. occasionally if I am around the title company I will go in and sign but NEVER is the buyer and SEller in the same room and NEVER are checks distrusted on the spot like they do back east.
For one I would NOT accept a check from a closer attorney or other wise I ONLY accept wires as a seller ...
Thanks so much Jay! Your episode on the Podcast was actually one of my main inspirations and kick started my journey, to REI. I feel very honored for your advice and coaching! Thanks a ton! Please don't hesitate to let me know if there is anything I can do to add value for you!
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