I Found Private Lenders.. Now What?

Question

Hello BP,

As the title suggests- I have 2 individuals each willing to invest 50k into a multi-family unit (asking price 450k). My plan is to purchase the property using the investors' funds for the down payment and my own capital to cover the balance if need be (I have around 20k liquid). This is on a hand shake basis.. So I have the deal, I have people who have SAID they are willing to provide capital... Now what? Do I ask them to deposit the funds into an escrow account? Are there legal ramifications I should be cognizant of?  We have discussed an agreeable rate of return and equity position- these terms need to be put into writing correct? Should I just type up a document on Word and have the partners sign it? I feel like the "big" components are in place- but I'm having trouble tying up loose ends. Looking for some guidance to bring this thing home.

Thanks All!

Shawn Ward · Answer

@Victor Steffen yes..form a new LLC and get an Operating Agreement going.

After you have the new LLC formed, open a bank account and they can deposit the funds there.

Onwards!

sjw

Roman M. · Answer

This is what I will do.

Victor Steffen · Answer

Great, thanks @Roman M. Let's say myself and my 2 partners put together an operating agreement and all parties are on board. We all deposit funds into my LLC's checking account, and purchase the property from that fund?

Roman M. · Answer

Sounds like they are partners and not lenders. You will need an operating agreement for the entity that is buying the property where they will be limited partners.

Dave Van Horn · Answer

@Victor Steffen

They could send it to your attorney's escrow account. If they're lending it to you, then it's a private note that your attorney can draw up along with a security agreement.

Or are they partners in your entity? In that case, they would just sign your operating agreement. But when you're pulling money like this can create securities issues, so you may want to talk to a securities attorney first in that case.

I Found Private Lenders.. Now What?

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