Money from a friend.
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.
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.
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
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.
Hey Chris, hopes this helps.
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.
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.