My Co-workers want to Lend to me. Now What???

7 Replies

Hi fellow BP'ers! It seems that I have proven myself to my co-workers who now are willing to invest with me as private lenders. I am negotiating two home purchase deals and possibly a third. Part of the incentive is the ability to make a cash offer and close fast. I can fund just one of the deals myself, but that would leave me with zero cash on hand until I refinance out of it. I would prefer to have private lenders fund the purchase of the properties. My problem is, I don't know where to start and how to draft such an agreement to borrow private money. So here are my questions: 1) If co-worker Bob lends me $10,000 with a 10% interest, how would that be structured? Where can I download an agreement form or or loan form? 2) Co-worker Bob wants to make sure his investment is safe. How do I do it as a lien on the subject property? And if Bob is lending $10,000 and I'm paying him 10%, is the lien amount the principle plus interest? In other words, is the lien $10,000 or $11,000? 3) How do I get some type of payment amortization schedule? How are the interest on these types of loans calculated and structured? Do I just automatically add 10% on day one and pay it as a $11,000 loan instead of a $10,000 loan? 4) Where do I file all of the paperwork? Is it something done at closing or can it be done before closing? Do I get it notarized and then file it at the county clerks office? 5) There are about four co-workers interested in lending money to make 10%. Is the process the same for one house purchase with 4 private lenders vs one hoyse purchase with just one private lender? 6) My exit strategy: Use cash to acquire a property using private money. Get a commercial loan to refinance to pay the private lender back plus the rehab. If for some reason that doesn't transpire, I'd wholesale or flip it. I already talked to a portfolio bank and they will do a commercial loan with the rehab. No seasoning. 15% down or 15% on the ARV for a refi. 30 yr amortization, 5 year ballon. 7) Any advice, resources, information or anything that may help is much appreciated. Thank you! Phillip Lanier

@Phillip Lanier to respond to all of your questions here might take a novel so I'll do a quick answer and if you need more than this than just call me. I'm here in Texas too.  

1) there are many examples of notes online.  Just google some examples and see what works best for you.

2) you will be placing a lien on the deed to protect Bob

3) The payment structure should be agreed upon in the note. Especially if you are using simple or compounding interest.

4) The title company you use when closing will file all the necessary paperwork for you.

5) Process is essentially the same.  Just file the liens as appropriate.

6) Your exit strategy is pretty standard.  If you want to refinance, you can do it with a conventional loan with no seasoning too.  Just keep that in mind.

7) Feel free to call if  you need anything else.


Thanks!

1, 4. Ask your local title company who they use for their legal work. Go to them and let them know you need a 2nd on a house. Tell them who is lending the money, who is borrowing, what terms and they will take care of it for you. You can either have everyone sign in the atty office or you can sign at your convenience.

2,3 Atty or you can file the deed of trust with the county clerk. Your lender will keep the original Note. Terms are spelled out in the note that you tell the atty. It is just like your mortgage or your car loan. You borrow 10k. At the end of month 1 you owe 10k + the interest for 1 month (for ease of numbers lets say 12%). Your balance is 10,100. Now it depends, if you are paying interest only you will pay 100. Now your balance is 10k. When the interest builds up next month, you pay 100 again. Your balance always stays at 10k. If you dont pay for 6 months, your loan was still for 10k, but your balance is now at 10,600. google amortization schedule. There are a bunch of them that you can use.

The answer to all your questions is very simple....hire a lawyer. If you are thinking of going into business with others without involving a lawyer and legal contracts you are in way over your head.

people + money = Lawyer

Hello
Just a couple cents input... aside from investing...
you say you are investing with co-workers... I’m an HR professional by day and you should consider if there are any conflict of interests policies in the workplace. You need to consider what can happen if things go south at work, in business, and who does the hiring/firing personnel decisions now or potentially in the future.. I have seen these types of things sour and get in the way at work and it doesn’t always end up pretty.
Good luck though and happy investing!

@Rick Pozos :

1, 4. Ask your local title company who they use for their legal work. Go to them and let them know you need a 2nd on a house. Tell them who is lending the money, who is borrowing, what terms and they will take care of it for you. You can either have everyone sign in the atty office or you can sign at your convenience.

2,3 Atty or you can file the deed of trust with the county clerk. Your lender will keep the original Note. Terms are spelled out in the note that you tell the atty. It is just like your mortgage or your car loan. You borrow 10k. At the end of month 1 you owe 10k + the interest for 1 month (for ease of numbers lets say 12%). Your balance is 10,100. Now it depends, if you are paying interest only you will pay 100. Now your balance is 10k. When the interest builds up next month, you pay 100 again. Your balance always stays at 10k. If you dont pay for 6 months, your loan was still for 10k, but your balance is now at 10,600. google amortization schedule. There are a bunch of them that you can use.

You always offer solid advice!  I really enjoy reading your posts.  I always gain little gold nuggets from following your posts, projects, etc.  

This advice helps tremendously!  Again, I now have direction.  I didn't think about asking the title company.  

Originally posted by @Kiki Helland :

Hello
Just a couple cents input... aside from investing...
you say you are investing with co-workers... I’m an HR professional by day and you should consider if there are any conflict of interests policies in the workplace. You need to consider what can happen if things go south at work, in business, and who does the hiring/firing personnel decisions now or potentially in the future.. I have seen these types of things sour and get in the way at work and it doesn’t always end up pretty.
Good luck though and happy investing!

Thanks for your concern.  This will not be a problem at all.  

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