How to structure Private Money?

Question

Hello BP! I have a family member that’s willing to lend money from their HELOC for my next deal to cover rehab costs. I’ve never used private money and was wondering how I could structure it?

Nicholas L. · Answer

@Jerome Morelos

no offense but... this doesn't make a lot of sense to me

HELOC rates are high so for this to work you'll have to give them a great return to make this work for them...

way too complicated for my taste

Beth Johnson · Answer

Pick up a copy of the book Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. It's available on the BiggerPockets bookstore and helps explain how to fund the loan properly and legally. A promissory note and deed of trust are important but there are also other disclosures and documents you should collect to help protect the loan - Lender's Title Policy in 2nd position behind the bank loan, Loss Payee on the hazard insurance policy binder behind the mortgage lender so your parents get reassurance they'd be paid back if there were any claims that need to be made. Non-owner occupancy and business use affidavit are also important as usury limits in California are 10%. I know this is between you and family but just so you and others know, that state actually has licensing requirements for private money lenders. There is a carve out for one loan by a PML per year but thought I'd throw that out there for others reading this post, too.

Chris Seveney · Answer

@Jerome Morelos

It will be similar to what you sign with a bank, there will be a note (which is the iou which states how much you can borrow and at what terms and length)

Then there will be a deed in trust (assuming California) which is a recorded document that uses the property as security. A closing / title company can handle the transaction but may want to get a lawyer to draft the documents.

Assuming you are buying in your name and not a LLC - if a LLC then there would need to be additional docs like a authorization for LLC to borrow $ etc

Jacob Sherman · Answer

What is the scenario looking like ? What type of property ? Including acquisition and construction ?

How to structure Private Money?

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