Money from a friend.

9 Replies

A friend of mine wants to lend me money to flip and I need help on how to structure a deal with him. I currently buy and hold and ready to flip. What needs to be done to be fair to him and me? Maybe someone could walk me through a friend money lender.

Thanks

Joey

Ive been wondering how to structure a deal exactly like this, please tag me whenever this is answered, thank you and good luck.

@Joseph Stelly

There are all kinds of ways to structure this deal. First you need to talk to your friend about his needs in regards to a return. If he is going to be putting up all of the money then you need to have proper structures in place to protect his money.

  • How does he want to be involved? Silent or active?
  • Does he want to lend on the debt side or be an equity partner?
  • Do you have the capital to buy his side out if the deal goes sour?
  • Are you willing to lose your friendship?
  • How much of your friends total net worth will you be taking?

After you figure out these specifics you need to speak with a good real estate lawyer to make sure you are staying in compliance. Also be very careful of equity investments from silent partners as this could be deemed a security. A lot of small real estate lawyers don't understand securities/blue sky law. Do your research on the structure along with seeking qualified counsel. Good luck!

Good question. I would love to hear more peoples opinion.

Thanks Chris; I will have to find out more from him but I do know that he mentioned to be a silent partner and also this person is already worth millions? But you brought up good points that I will ask.

@Joseph Stelly

A clean and easy way would be for him to loan you money with security of a 1st deed of trust and promissory note. You could structure the loan so all interest is paid once the property sells. All rehab funds should be escrowed or held by a 3rd party with draws being made upon progress. Make sure all legal docs are prepared by a qualified lawyer (or at least reviewed) and that either a lawyer or title company closes the transaction with the proper amount of title insurance (lender). 8-10% would be a good return given that you have a track record in real estate. It depends what the investor wants.

*this is not legal advice

@Chris Winterhalter

This sounds more like what I was thinking but didn't know how to say it. I wasn't sure if I would have to offer a percentage of the profits plus the interest on the money I borrowed. My way would make it sound more like a partnership than what he or I would like. I will consult a lawyer. Thanks again.

Make sure both you and he have an understanding on what will happen should the worst case scenario happens. Money can be a good thing between friends, but more often than not the stories you hear are the ones where it destroyed the friendship.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

@Dawn Anastasi

Thanks Dawn, I am partnered with a friend on two buy and hold single family houses that were supposed to have been flips 6 years ago and things were going downhill fast at the time. I will be cautious and as prepared as the BPnation can help me to be.