I am nearing that point in my investing where I am begging to think I will need in the next 2 or 3 deals to go to private money lenders. I am fortunate that I even think I have some people who might be willing to do that. What I am not as clear about is the following:
What the terms look like? I have listened to every BP podcast and I know the rates (ish) people seem to get, however..........
What does the contract look like? I can guess that a private money lender looks just like a bank on all docs. To that end..........if in the event I do not pay they could foreclose, just like a bank
When people say I am paying 9% for example they often follow with.......... rehab rent refinance...........soooo is there a typical early payment penalty? Do they mean 9% apr? What if I pay the loan off in 3 months?
Are folks typically paying a cost for the loan in the first place like you would with a bank and hard money lenders seem to also charge?
Do you go through an attorney to draw this up. Is it state specific?
Any other info or guides in the right direction would be most appreciated.
There are a million ways which financing can be structured, its nearly impossible to type them all out. If your private money is a friend or family member, I suggest talking with them to see what theyre comfortable with. They would most likely want to take title to the property in the case you default.
Always work with an attorney when drawing loan contracts.
An example of what my partner gets - 100% financing, 100% rehab costs, 7% interest only, paid upon the sell of the project.
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