Private Money Deal Structure

[Mike Donnenwerth]

I have heard several strategies in the creative finance forum and one I'm interested in is private money. I understand the concept of partnerships and friends/family providing capital to purchase a deal. My question is when approaching a potential private money lender, how do the deals typically get structured? When would the.private money lender get paid? Do they get all of the cashflow up to their agreed upon percentage?

This is how I would like to begin as saving capital takes time to do. I have some family members who would be interested but having a plan to present to them would likely be more enticing. Any comments would be appreciated.

[Justin Fraser]

I agree with @Kyle Mclaughlin - you can set up a debt or equity structure. In Equity- the lender could put up all or some of the money in exchange for a % of ownership. The terms are for you to negotiate. For Debt- the lender puts up all or part of the money (depending on the terms you negotiate) in exchange for a return on their money- which could be in the form of both points and interest, or interest only if you can set up that arrangement.

For a Flip - I pay my debt investor both points and a percentage return, and in exchange he provides the money for 100% of the purchase and rehab costs. I also don't make any payments until we sell the property- this way I'm not burdened with monthly rent payments. This structure would not work for me if I was doing a buy and hold.