Private Money - What form of documentation?

5 Replies

What type of docs do you use when accepting private money as part of a deal?  Do they hold a 2nd position on the asset?

I'm not quite there yet, but have some friends/partners interested in getting involved and I'd like to plan ahead.  

I'll give you an example: Standard BRRRR situation. 100k purchase price. Go through lender for financing (25% down). We split the 25k down payment. I put up 10k and he puts up 15k. I perform the rehab. His money is loaned at 10%, and I pay interest only until we pull the capital back out through a refi, at which point he is reimbursed. This is just a quick "off the cuff" example. Not real numbers and not a real deal, so no need to analyze the actual numbers.

Obviously, I'll get input from my attorney, but would like to see how the BP community has handled these situations.

Thanks!

@Brian LaPorte if you have a bank involved they will always want to be in first position. With that said, being in second position is much more risky for the private money lender so typically fees/points are higher. This is definitely possible, but just speak with your attorney on how to properly structure!
@Brian LaPorte I do this with friends and I don’t have them put a lien on my property. We just write a promissory note and I pay interest only 10% until I return their capital. It’s easy and they get good returns. They have to trust you enough that your personal guarantee is enough but it’s worked for me!

Haha! Yes, exactly what I do. I'll send you the one I use if you like, just PM me!