Private lending terms- need your opinion!

[Rich Thomas]

Hello, So I have a private lender that has sent me his terms on the money he is willing to lend and I would like some opinions on these terms as this is my first time using a private lender....I would be doing all the work from start to finish on the property and he would be solely the money.. Im the class A partner, lender is class B... "Profits and losses shall be allocated as follows; a. On a Property by Property basis b. To the extent profits are available, Class B partners will first receive interest on amounts advanced, calculated at prime rate (at the beginning of each quarter) plus 3% per annual, compounded monthly. c. Any remaining profits will first be allocated 20% to the Class A partners, d. Any further remaining profits with then be allocated 50/50 between the Class A and Class B partners. Losses shall be allocated 50/50 between the Class A and Class B partners" Are these fair terms for me as the borrower?

[Rick Pozos]

This is not a lender relationship, this is a partnership. The person putting up the money is getting about 40% of the profit. That is not bad, but WHY?? Are you looking for a lender or a partner? I have partnered with my brother in law, sister, close friends, other family members. I have borrowed from HML and the above list. When someone is a partner it is very different than when they are lenders.

As a borrower, it would be cheaper to borrow at 18% interest rate, provided the deal really is a deal. Figure out what your profit should be and then figure how much you are giving up as 40% of that profit. Do you think you can pay a little more in interest instead of 40% of the profit??

If that is the only way you can do the deal, do it. It works and you move forward. It is a high price to pay when you can get a hard money loan and pay a bunch less.