So I am new to the Private Lending scene...I have someone who I am ready to start lending with/building a partnership with but I need advice....
What kind of questions should I be asking to get to know that person better ?
I am looking to structure a deal w/ split profits or a standard ROI....what should we split if I am providing funding and they are providing the rest?
What documentation should we have to protect all parties involved?
What other information would you like to share with me?
really good question, i would like to know the terms best case scenario for a non hard money lender -- the point system has me confused and sounds expensive! Is it 50-50 split of the "profit" after the sale? how does this work?
Great question @Bryan C.
First Congrats on the lending business. I hope an trust that it goes well for you.
The way you are talking about lending is what is typically referred to as Joint Venture Lending or "JV". Those deals are normally done with one person funding the whole deal and one person doing all the work. Then there is a split of profit that is predetermined.
As far as what forms we use the following:
If you would like to have a copy of what I use you can PM me and I will send them over to you.
What you need to watch out for:
How much experience does your "partner" have flipping a property is not easy and if they are new can take a very long time. Which of course will hurt your returns.
There needs to be a start date or a penalty and a finish date or there is a penalty. Meaning lets say he will start by a certain date if he does not he loses 5% of his share. Then if he is suppose to be done by a certain day he loses another 5%.
We can talk more on PM if you would like. But I have done 100's of these deals. Let me know if you need anything.
Great answer Andrew! I agree, and also for newbie i would recomend using a 3rd party contractor at least for the first deal as you can concentrate better on your numbers when you have the certainty of labor/materials covered. Dnt worry about makkng the max profit on your first deal, rather learn as much as you can.
Run the numbers, its almost always better to be a borrower than a JV partner. Plus, partners tend to want to be involved in the work and how much you sell it for, etc. And rightly so, its their money too. A lender is just that, they get a fixed return and you are in total control. You don't really want to "borrow" money, then split profits, AND give up control over how much and when you can sell when generally paying a high interest rate well secured will do the trick.
Andrew nailed what all you need. It'll vary by state, but the main things you need are a note outlining the terms and the security deed attaching his interest to the property.
If you do go JV, it gets a little more complicated. Depends on your relationship. My last one we formed an LLC we each owned half of. With people I know and trust (like my dad), we just agree to terms and do it on a handshake (or emails so there's a record if we need to go back and check). Its funny how that works sometimes as you build trust and act ethically, my lender leaves hundreds of thousands of dollars in my operating account with no docs because he knows he can trust me with it.
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