Realtor · Newberg Oregon · Member since 2017 · 41 posts · 32 votes
Hello,
I am working on the structure for a one deal team for a single family property flip in Texas.
There are three members of the deal:
1) Brains: The guy putting the together
2) Brawn: the general contractor doing the work
3) Money: Me, the guy proving ~80% of the money via a Private money loan.
Brains and Brawn are already structured together as a LLC and have done 3-4 flips in the last year or so. They are looking to bring me in as a private money lender to finance the purchase and some of the construction.
My question is, what are the ways this deal could be structured?
My initial plan was to loan the money directly to the LLC. I would holding the house title and also have the 2 members (Brains and Brawn) personally guarantee the loan.
Is this the "customary" way to structure this type of deal? or might there be a better / cleaner way to do this?
This is fairly typical, though generally, you wouldn't be holding title. The LLC would be holding title. But, if that makes you more comfortable and the other two guys are okay with it, that works.
This is fairly typical, though generally, you wouldn't be holding title. The LLC would be holding title. But, if that makes you more comfortable and the other two guys are okay with it, that works.
As J Scott stated, the "lender" typically is not on title, the other entity with brains/brawn would hold title, you would hold the deed of trust and promissory note (plus personal guarantee rider from both individuals) against the property.
Another structure option would be for you to also join in on title as a partner for an equity share in the deal and that can be structured in any format you all deem a win/win/win.
As mentioned above you could just act as lender and record a mortgage/deed of trust with promissory note and personal guarantee from all parties in the deal would be the cleanest way to structure the deal.
Another option which could potentially yield higher returns on your money is to become an equity partner in the deal, this could put your money in a riskier position and in the case of a default or failure to perform of other partners.
Something to decide on now is how passive of a roll you want to play in the deals. Becoming some type of equity partner may mean that you have to be a little bit more active then just lending the money.