I am just starting off as a private money lender need some advice

5 Replies

I am very very new to this. I have an opportunity to be in a deal with some people who buy and flip and wholesale,  they are very successful people.  They offered me a deal were  I can invest 30k  @12%. my money will be used for Closing  But I am in second position.  He sent me a promissory note and it states that the money is used for:

● Down payment ● Holding costs ● Closing costs ● Interest payments to hard money lender ● First draw to the contractor Offering 12% interest via a 12-month note, personally-guaranteed.  

Can anyone tell me if this is a good deal.  I don't have attorney but I will find one quickly, I need so help...this is the 

Agreement I have not aggregated to this or signed it.  

If more than one borrower signs this Note, the word "I" shall mean each Borrower named above. The word "Lender" means the original Lender. This Note is non-transferable.

Borrower’s Promise to Pay Principal and Interest. In return for a loan that I received, I promise to pay $30,000 (called "principal"), plus interest to the Lender. Interest, at a yearly rate of twelve percent (12%) will be charged on that part of the principal which has not been paid from the date of this Note until all principal has been paid. Borrower agrees to pay back Lender any accrued Interest at a minimum of once every 6 months.

I will pay all amounts owed under this Note no later than June 5, 2019. All payments will be made to the Lender at the address shown above or to a different place if required by the Lender. In addition, any wire fees, legal fees, and/or mailing fees incurred by Lender will be paid by Borrower as part of the payoff of this note.

Early Payments. I have the right to make payments at any time before they are due.

These early payments will mean that this Note will be paid in less time.

Late Charge for Overdue Payments. If the Lender has not received any payment within seven days after its due date, I will pay the Lender a late charge of one percentage point. This charge will be paid with the late payment.

Default. If I fail to make any payment required by this Note within seven days after its due date, or if I fail to keep any other promise I make in this Note the Lender may declare that I am in default on this Note. Upon default, I must immediately pay the full amount of all unpaid principal, interest, other amounts due on this Note and the Lender’s costs of collection and reasonable attorney fees.

Waivers. I give up my right to require that the Lender do the following:

  1. to demand payment (called "presentment");
  1. to notify me of nonpayment (called "notice of dishonor"); and
  1. to obtain an official certified statement showing nonpayment (called a "protest").

The Lender may exercise any right under this Note, or under any law, even if Lender has delayed in exercising that right or has agreed in an earlier instance not to exercise that right. Lender does not waive its right to declare that I am in default by making payments or incurring expenses on my behalf.

Each Person Liable. The Lender may enforce any of the provisions of this Note against any one or more of the Borrowers who sign this Note.

The holder’s failure to exercise any right or option here under does not constitute a waiver of any future right or option. No modification to this document or indulgence by any holder hereof shall be binding unless changed by an agreement in writing signed by both the Borrower(s) and the Lender. 

Comments are greatly appreciated.

STandard promissory note .. do you have a mortgage or deed of trust to go with it to secure your interest.

this is called gap funding and the rates are quite a bit higher than what they are offering.

also if this deal does not go well do you personally have the money to pay off the loan take the house and finish it or sell it or if the first went bad would you get wiped out because you do not have the money to pay off the first.

Personal guarantee's are worthless.. in 99% of cases  if it comes down to you having to sue on the PG means your going to spend big money with attorneys to do this and the debtor 9 times out of 10 simply files BK.

so that's the other side of the coin.. the rest is how much U trust them and how much money you have to protect yourself.  but rate is way low for gap funding frankly.. that's what  you should make in first position.

To bad can’t vote for Jay more than once. Second position, even with a PH and a mtg is crazy risky. I live how these guys say they are successful flippers and have No cash at all to put into the deal.
This can be a good way to lose your money.

Originally posted by @Wayne Brooks :

...these guys say they are successful flippers and have No cash at all to put into the deal.
This can be a good way to lose your money.

^^^ This...exactly.

Originally posted by @Wayne Brooks :

To bad can’t vote for Jay more than once. Second position, even with a PH and a mtg is crazy risky. I live how these guys say they are successful flippers and have No cash at all to put into the deal.
This can be a good way to lose your money.

It can actually make perfect financial sense to do this even if you have cash.  You lower your own equity investment and thus you:

- Increase your IRR

- Lower your own personal risk if the project goes south

It's easy to make money when you're gambling with other people's money.