OPM Other People's Money

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I have been doing deals with my own money but I just found my first "silent investor" and I need to know how to set up the money so that everything is legal and done right..... anyone got input here on JV deals or OPM?

Originally posted by @Erick Jordan :

I have been doing deals with my own money but I just found my first "silent investor" and I need to know how to set up the money so that everything is legal and done right..... anyone got input here on JV deals or OPM?

 You'll want an attorney to draft up the loan / mortgage. Amortization terms etc.......Really only way to do it. Don't want to set anything up as an arm chair attorney.

I understand that and would do so, but this is not a deal for one property and would not be a "mortgage".  It is a deal for a set amount of money for a year at a set interest rate....  Insurance will be set up to cover the lender in the deal but the "loan" will basically be a lean hold on each property for the value used in that particular deal....  Dose that make sense?  I am open to input, lol

Originally posted by @Erick Jordan :

I understand that and would do so, but this is not a deal for one property and would not be a "mortgage".  It is a deal for a set amount of money for a year at a set interest rate....  Insurance will be set up to cover the lender in the deal but the "loan" will basically be a lean hold on each property for the value used in that particular deal....  Dose that make sense?  I am open to input, lol

 Is it a loan or equity? Is it secured or unsecured by collateral such as real estate? Will you want to record the agreement? These types of answers will determine what type of "investment" it is, how it is regulated and what documents to draft to protect both parties.


I understand that and would do so, but this is not a deal for one property and would not be a "mortgage".  It is a deal for a set amount of money for a year at a set interest rate....  Insurance will be set up to cover the lender in the deal but the "loan" will basically be a lean hold on each property for the value used in that particular deal....  Dose that make sense?  I am open to input, lol

 If the best investor in the world asked me for a loan and sent me an agreement they wrote themselves with the help of an internet forum, I would never return their call. If you cut that kind of corner, it doesn't give a good look, not to mention it doesn't give your partner good security.

I've been wondering about the same type of thing! If I have friends/family/coworkers interested in giving me their money to use for investments, what are the terms, what are the documents needed, etc. I'm also wondering if there's any range of ROI I would give my investors so they know what to expect.

Originally posted by @Jason Hirko :

I understand that and would do so, but this is not a deal for one property and would not be a "mortgage".  It is a deal for a set amount of money for a year at a set interest rate....  Insurance will be set up to cover the lender in the deal but the "loan" will basically be a lean hold on each property for the value used in that particular deal....  Dose that make sense?  I am open to input, lol

 If the best investor in the world asked me for a loan and sent me an agreement they wrote themselves with the help of an internet forum, I would never return their call. If you cut that kind of corner, it doesn't give a good look, not to mention it doesn't give your partner good security.

While I truly appreciate your input here Jason, I am not asking for help writing an agreement at all.  I was asking for input about how to approach the situation.  I will have an attorney draw up anything I am doing, thank for your concern though. I am glad to see great PROs like yourself on here helping out.  That is what makes Bigger pockets so great!  People are welcome to make any comment they would like, helpful or not...smh.

Hey @Erick Jordan glad you are so thankful for everyone's help here! Apparently everyone else here made the same mistake in reading your post to mean you were talking about how to arrange a partnership. So Sorry. So if you aren't asking for how 'PROs' arrange JVs on their deals, what are you asking? I must not be one of those helpful pros since I don't understand your question

Erick, what you are describing sounds very much like a Secured Line of Credit with a touch of draw down complexity.  I have used similar instruments in the past where every time I draw on the LoC the new asset has a lean placed on it at the time of closing.  Any small bank (or hard money lender) does this on a regular (not every day) basis.  You might want to even look at mirroring Sharia loan models (mortgagee and mortgagor both own % of the property).  If you are doing it outside of that, call Ron.  

Let me offer you this advice.  I pour money into my two attorneys structuring deals and even to this day, I walk away from funding models that are not well established and vetted with case law.  

Hey @Erick Jordan , I think the first thing to figure out is what will the money be used for, i.e. what type of investments are you targeting? Are you looking to do wholesales, fix and flips, buy and holds? Second, where in the capital stack is this money going to be used? Is it debt, mezz, equity (preferred or common)? Could you give a sample of a deal and where the investors money would be used and we could come up with a better structure for you? 

From your comment on the capital being used for multiple deals it sounds like a JV is in order. The lender is likely going to want collateral so in my dealings we had the title company lawyer draw up a mortgage, and promissory note detailing the terms of the agreement and the deed filed with the county. Your lender may also request a personal guarantee document and a deed in lieu of foreclosure doc to further protect their capital until you have multiple deals with them under your belt. At completion of the project/s (assuming flip here) the PM lender will provide a payoff statement summarizing what's owed, and often the original note with paid in full on it and sometimes the original deed upon closing. I assume the process is the same with multiple investments as it is with one since each time they fund a purchase or rehab draw, they will want it documented for protection. If you don't have a good real estate lawyer on your team already get one; will save you lots of trouble down the road.