Setting up private loan process for friends to invest

[Keith A.]

I would like to approach some friends for private loans but would like understand the process to better explain it to them. Does this approach makes sense? The terms and percentage may change but more concerned on the process.

1) Offer win-win terms. ex. 7%-9% rate, 25-30 yr amortization, 3-5 year balloon, 1st position

2) Have title company handle funds from private lender for subject property and closing.

3) Use loan servicing company like FCI to handle payments

4) At end of term either extend or refinance out

Any thoughts are appreciated.

[J Scott]

If you only plan to use one loan per property (not pooling funds), this seems reasonable. I would suggest thinking through the "extend or refinance out" part of the equation. In 3-5 years, interest rates could be significantly higher, and your lender(s) may not be interested in extending with these same terms. You should be prepared on how you'll handle that now -- both with them and in terms of you being able to pay off the loan if need be.