Private Lending: Question About Promissory Note Details
Context
First time investing with a PDX flipper (great at what he does) and happens to be a good friend. He is raising private capital and the deal seems bulletproof, but would love feedback to better understand if I'm asking the right questions.
Property Details
The property is a probate sale at a solid $160k w/ closing costs. I am contributing the purchase price and from there, there are a few options:
- Immediate Flip: 3-4 months; essentially wholesale the house to another developer w/ plans.
- Rehab and Sell: 10-12 months; complete teardown and rebuild (already has plans drawn).
- Light Rehab and Hold: time and return unknown.
Depending on the market, we're likely looking at options 1 and 2.
Deal Details
I'm providing the capital for the entire purchase and he is grabbing another $320k for the teardown (should we move w/ option #2). Here are the details:
- 10% simple interest on the principle; full payment including principle plus interest due 12 months from loan dispersal or upon sale of the home.
- No pre-payment penalties.
- If option #2, additional return of 1.25% paid off the final sale price of the home.
- Late payment occurs 30 days of 12 month due date; 1.5%/month accruing per day from the original due date.
- I will be on the Deed of Trust in first position.
Is there anything missing that I'm not seeing? Would you lend on this?