What do I need to lend finances

18 Replies

I have some money that I am thinking about lending to a flipper. He says he need 15k for 6 months. He would offer 16% for a full year and 3 points. What paperwork do I need to insure that he pays me back? I've never loaned anything before and don't know him. Just met him in a forum. Any advice would be appreciated Thanks!

Google promissory note and deed of trust.  I've done what you're doing all by myself. No need for anything fancy. 

Promissory Note is a glorified IOU.  And the Deed of Trust is a lien that protects you in the event they stop paying. 

Be careful about loaning someone money that you don’t know and who you “just met in a forum”. What’s he borrowing the money for? $15k doesn’t sound like enough to buy a property so it’s probably a second position loan. Sounds risky, especially when you take into account that you don’t even know the borrower. 

Find a local self directed IRA group in your area. Go there, attend an event, talk to other lenders.

Wait you say, this is not coming from any IRA accounts --- please hold on, because here is where I am going.

At our local SD IRA meets, there is a law firm that specializes in doing lender agreements and they will be in attendance. You'll probably meet them there. Get their card, get an idea of what they charge, and be sure to mention that you aren't planning to lend out of your IRA, if that is the case. Maybe they can still help -- my guess is that they can. Just make sure you are getting some collateral.

Be sure you go vet this guy properly, also.  Go see some of his projects.  I've met some seriously legit dudes right here on BP and I've been to their jobsites in a few cases, and I've learned more that way than anything else I can think of (other than making my own mistakes).  In this case, the guy seems wiling to pay more than a hard money lender would charge, so I'd be asking myself why that is.

Second nugget of free advice is never loan against any property that you wouldn't be delighted to own.  Because you very well might if the project goes pear-shaped.

Demand to see a signed sales contract and Insist on seeing a preliminary title report before letting go of any money. Agree with @Cody L. . it is not anything fancy but for your first deal it would be worth checking with an attorney.

@Jacque Sacramento Yep, I'm not sure. He said he ran out of money mid flip. Just needs a bridge to get it through completion. I like the idea of real estate and community and believe in the good of people. Could be my first mistake! I'll talk with him tonight and get more details. Thanks for reaching out. It's better to start with a no, and be convinced of a yes
Originally posted by @G Brian Juk :
@Jacque Sacramento Yep, I'm not sure. He said he ran out of money mid flip. Just needs a bridge to get it through completion. I like the idea of real estate and community and believe in the good of people. Could be my first mistake!

I'll talk with him tonight and get more details.

Thanks for reaching out. It's better to start with a no, and be convinced of a yes

 If he has debt on the property, and new loan would make you in second position.  If his debt is already close to property value, you have zero protection against default.  Unless I knew the person, or the property was in my back yard, I'd pass.  There are easier ways to make $ 

And this is coming from a pretty risk tolerant care free guy who buys apartment buildings with just a rent roll and never seeing them. 

Originally posted by @Cody L. :
Originally posted by @G Brian Juk:
@Jacque Sacramento Yep, I'm not sure. He said he ran out of money mid flip. Just needs a bridge to get it through completion. I like the idea of real estate and community and believe in the good of people. Could be my first mistake!

I'll talk with him tonight and get more details.

Thanks for reaching out. It's better to start with a no, and be convinced of a yes

 If he has debt on the property, and new loan would make you in second position.  If his debt is already close to property value, you have zero protection against default.  Unless I knew the person, or the property was in my back yard, I'd pass.  There are easier ways to make $ 

And this is coming from a pretty risk tolerant care free guy who buys apartment buildings with just a rent roll and never seeing them. 

I would never loan money in NY on a mortgage  /  they don't use deeds of trust..  if it goes TU it can take years to foreclose.. if you feel you need to help him just give him an unsecured prom note.. no defense to that if he does not pay and you get personal judgement quickly.. just check to make sure your not violating usury laws in your state..   

Seems like a lot of effort for ($15000*0.03+$15000*.16/2) = $1,650.

Divide $1650 by how many hours this will take, compare that to your normal day-job wage.

That being said, if you want to get into private lending then it might make sense as a fairly low-risk (assuming you follow the advice of others in this thread) "learning experience," that's not crazy. 

@CHRIS Well, I’ve thought about another property. With that 15k I could buy another duplex. But, I just bought one last month and I’m in the middle of a brrr. So I’m super busy. When this brrrr finishes up, I’d like to get another one, but in the mean time thought that I could put some money out there in The real estate community and learn another side of the business
@G Brian Juk You can’t look at Memphis D properties as a bad investment. I’ve invested into 4 properties in Memphis for 30k and received an ROI of 42%. I don’t rent to one person to a home. Within housing three disabled vets to a house at $500 x 3=1500 per month. Rent will be guaranteed thorough Non- profit organization. You’ll never have to worry about rent, damage, or anything else with renting to veterans.