Positioning multiple lenders

2 Replies

Hey there BP community.  Newcomer here curious about structuring some financing.  My ideal option would be to work with a single private lender to fund a flip.  In that scenario, of course, the lender would have a lien on the property to offer some collateral should anything go wrong with the project.  My impression is one needs to build a reputation and positive track record before being able to secure such financing.  I imagine starting out I'll need to use a combination of hard money and a pool of funds from multiple friends and relatives.  In that case, the hard money lender would have first position.  Will the friends and relatives just be out of luck should anything go wrong?

If there were no hard money lender in the picture and there was just a pool of funds from friends and relatives, would all said lenders just get some percentage ownership of the owning LLC and then get a corresponding percentage of the sale price in the event something went wrong?

Obviously speaking with an attorney (I assume a securities attorney) would be warranted, but I'm just curious if others in the community have done something similar.  Not looking to setup an investment fund, but perhaps that's the only way to do it properly?

Appreciate any insights.

Thanks!

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@Kevin Smith It depends on how you choose to structure it. Normally if they are Lenders, they won't have any ownership in the LLC. People are usually either lenders or company owners, although a company owner can also lend the company money. 

If there is a hard money loan it is possible that another lender could have a second mortgage. If there is a problem the second lender only gets paid what is left after the first lender gets paid.  Some lenders, including some hard money lenders, won't even let there be a second loan on the property.  You can even have a third of fourth mortgage on the property but that is getting way to complex and is asking for trouble. 

Regarding experience, yes the more you have the easier to get financing of any kind.  However with private lenders the dynamics change somewhat. Private lenders loan to you because they know and trust you. Or even loan out of love  -  IE. parents.

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