Lexington , KY · Member since 2009 · 24 posts · 0 votes
I have a good prospect for private money for fix and flip. I was wondering about good tips to protect the borrower in these private money deals. Since this is my first one, what are common things would make the deal more appealing to the person (interest rate, terms)
Thanks,
David
Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
16y
The private lender needs to have their investment secured by the property.
This would mean that at closing you would sign a mortgage... with the private lender being essentially the bank. That mortgage would be recorded to give the lender a first position on the property should you default.
Here are a few of the documents you might want to execute to protect the private lender...
1. Borrowers Loan Disclosure Statement,
2. Purchase Money Deed of Trust,
3. The NOTE,
4. Balloon Rider to NOTE,
5. Guaranty,
6. Assignment of Rent and Leases.
Any good title attorney will be able to create the required documents.
As for the terms of the loan...
Typically private lenders will charge points up to 5 points and interest up to 15% annually. These are entirely negotiable between you and private lender.
I would reommend that you not promote unually high rates of return... (i.e., offering high points and high interest payments) as it will scare many people away.
Also, the terms for these types of loans are usually interest only payments, and 6 months or 12 months in length.