Typical terms for private lenders?

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I have a family member who would like to invest in my first flip. What are some typical terms for private lending that I could propose? My only experience purchasing real estate so far is for my primary residence using a bank. Ideally, he would put up the money for the purchase and rehab costs, I’d run the project and then pay him back plus profit after selling it. I just don’t know what kind of payback to propose. A flat dollar amount or interest rate on the money he put in, or a percentage of the profit? Or some combination of that? I’m just looking for some examples. Thanks!

@Teresa DelaMater there are multiple ways to structure your agreement.

There is no standard.

I’ve never been in a flat fee structured deal, ever. If anyone has ever experienced that please enlighten me.

Below are examples: **Please refer to a Real Estate Attorney.

Amortized Note for “x” years:: Your family member is your private banker. They would create a note based on your terms and conditions and then you would sign the mortgage.

Hard Money Lender: Your family member could charge you points up front to borrow the money with a fixed time frame to pay back, example six months, but the HML is amortized for one year. At the six month mark, you would have a balloon payment.

Revolving Line Of Credit via Family Member: In this case, your family member allows you to borrow money as if it were a credit card. Therefore whatever the agreed terms are you would pay a monthly amount with interest. Obviously, you would give the first position to your family member “lien” on the property or some kind of collateral.

Whatever you do, please seek out a Real Estate Attorney, especially if you’re dealing with family members.

I would advise not to involve family members in deals unless you have shown a proven track record and the family member understands the risk of not getting his/her money back.

Best of luck!

I have set it up from 6-10% with private money but usually, even with family, I’ve brought money to the table as well. If they are funding 100% + rehab I’d think about giving them a percentage of the profit on the flip in addition to the interest. The idea is that you want to give them a better return than they could get from a relatively secure investment and still be cheaper and easier than hard money. Ideally, you make it a profitable experience for them and you can do more deals together in the future. Put everything in writing and make sure both of you can stomach the worst case scenario and still sit across from each other at thanksgiving. If you can, go for it!

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