how can i secure my private lender?

Question

I have a potential private money lender for rehabing that i am talking to but he wants to make sure he will get his money back and how it will be secured. I've tried doing research on mortgage liens and insurances but i cant really find specific ways i can secure his investment and persuade him to invest. Can I direct him to a 1st position lien or do i just need a good rehab spreadsheet to show him? How do more of the experienced guys build their lenders trust? I am also just about to turn 18 and I think real estate is the way to go for me.

Mitch Messer · Answer

Hi @Ely Santiago. Assuming you're using private lender (PL) money to purchase the house (and not just to finance repairs), they're going to want you to give them a 1st mortgage on the property: Give it to them.

You'll still be the owner of the property and your name (or your entity's name) will be on the deed. At closing, you'd get owner's title insurance (for your protection) and lender's title insurance (for the PL's protection). You'll also get a builder's risk property insurance policy, with you as the insured and the PL as the mortgagee.

Now, I'm in Georgia, not PA, so be sure to confirm all this with your local closing attorney. But, this is how I'd do it here.

Good luck! (I wish I had been thinking about this stuff back when I was 18!)

Chris K. · Answer

@Ely Santiago

I'm not 100 percent sure what you mean here, but if the private lender wants a first-lien mortgage, the private lender should hire an attorney to prepare, execute, and record the mortgage. The rehab spreadsheet is more to convince the private lender that you have a good investment. While the private lender may appreciate looking at the spreadsheet, the sheet itself really doesn't provide any direct "security" to the private lender.

Note that when folks say "security" in this context, they typically mean a property that acts as a collateral for the loan. In other words, security basically means a piece of land that the private lender can later take away from you if you fail to pay the private lender back.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.