Process to engage Private Lender

3 Replies

I have not engaged private money lenders before, and need some advice on the mechanics of engaging a private money partner.  I have built some relationships with people who has some money, and who is prepared to fund my deals.  I know that once a have a deal that I want to involve a money partner in, I need to follow some of the following steps:

  • Present the numbers and the deal to the private lender
  • Create a promissory note to the lender
  • Engage the private lender prior to or during closing
  • Pay the loan in full at the end of the term.

If anyone can elaborate on the steps involved, or maybe guide me to where I can find templates, or the necessary paperwork, I will really appreciate it.

Thanks

Besides the amount and terms of the note, the most significant item to be concerned with is whether the lender requires collateral - whether in the form of a Deed of Trust on the property (or another one you own - or several) or some other asset(s) like car titles, etc.  You can structure things where you are getting the loan beforehand or having the lender provide it to the title company just ahead of closing. 

If you are doing buy/hold and want to refinance into conventional financing, you should get the loan ahead of time and pay cash for the property which would allow you to then take advantage of the Delayed Financing Exception for Cash Out Refinance. You cannot do this if you put a lien (Deed of Trust creates a lien) on the subject property (though you could create liens on other properties if the lender requires that level of security).

There are templates out there, but many title companies are either owned by RE attorneys or have a relationship with one who drafts and reviews documents.  I used those attorneys for $200-400 depending on how many docs were needed.  One guy I didn't use had a fairly comprehensive and elaborate loan paperwork package he did for $450.  These are in the Houston area, so PM me if you want details.

I like the idea of putting a sample deal package together.  Find a sample deal in your market, put together a business plan for the property including your financial statement estimates, and present it to the possible lender so they can see what type of return they're supposed to be getting.  If the deal is a winner, you won't have any problems actually getting the money. 

@Doug McLeod  Thanks for the great advice.  I will pm you for some details on the Houston attorney.

@Jeff Trevarthen  Thanks.  I like the idea of putting a lenders package together.  I will research that some more.

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