So I have had a few private lenders who just lend me money with a promissory note. That has seemed to worked quite well. But I am in discussion with a new private lender who would probably want a lien against the property in addition to the promissory note. Is this easy to do? We would clear the lien when we sold the property or refinanced it in 12 to 18 months.
I am in the process of reaching this myself so interested in what experienced private lenders have to say but below are my notes from my research:
- Draft promissory note with loan terms
- Deed of trust or mortgage agreement whichever is required by State is recorded with first lien position which secures the lender’s interest (Title Company or Attorney)
- Appraisal paid for by the borrower but done by an appraiser I choose
- Get 1003 loan application and a credit report on the borrower
- Do a criminal background check
- Verify that borrower has the cash reserves to carry through with job
- Verify borrower past experience of successful flips
- Verify realtor, broker license, etc.
- Detailed breakdown of the rehab. Rehab budget held in escrow (do phased draws)
- Funds always held by a third party (title company)
- Seventy cents on the dollar
- Insurance to cover costs to ensure lender money is returned. Should insure for more than loan amount
- Can pay interest at end of term or up front
- Can offer interest payments or % of profit (not both) – interest will be 8% - 12%
- Lender will provide release of lien when loan is repaid
Thanks for the feedback. Your research seems to line up with what I know and what I am learning. However, much of the bottom part of the list seems like hoops you would jump through for a Hard-money lender or a private lender which you don't have a relationship with. Most of my private lenders are friends who have seen my track record and trust me. So they are not requiring the appraisal, credit check, criminal check, etc.
I've worked with three private money lenders. All three I have just done a promissory note with. One guy I gave 20% over a short-term. The other two guys are at 10% APR for a 6 to 12 month hold. The new guy I am chatting with would come in for 8%, but wants probably a deed of trust or a mortgage agreement.
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