All Forum Posts by: Jennie Berger

Quote from @Jesus Alex Arce:

Thanks for your post.  Lots of useful information is provided here. Do you have any interest in lending in California?  I am looking for GAP funding for a fix and flip in Capitola CA, PML is preferred.  We are experienced fix and flip operators.  Completing multiple projects per year.  If interested let's connect and review the details. 

At this time, I don't think CA will work for me. Thank you though!

Quote from @Chris Seveney:

Quote from @Jennie Berger:

Quote from @Chris Seveney:

Quote from @Jennie Berger:

Hello BP!

I have a growing community of friends / colleagues / et al who are interested in putting their money to work passively by private lending. I've been in the private lending space for about 1 year, and have lent on 3 projects to date. I have connected with many borrowers who are asking me to lend on their deals, and while many of these deals sound very attractive, I'm limited in my own source of funds, hence the reason for this post.

Background: I've been a designer and developer for the last 5.5 years, specializing in large gut renovations and ground up construction of single family homes and small multi unit buildings in the city of Chicago. I own and operate a few rentals, both mid term furnished and long term unfurnished, in 3 different states. I am an Illinois licensed real estate agent (mainly used for my own developments).

My Role in these private lending partnerships: Source and vet the borrowers, underwrite deals, originate, manage and service the loan, be a fiduciary. 

Context: Currently I lend in both my own LLC (just me, sole owner), and in a separate LLC (JV between one of my capital partners and me). This works well, but seeing as new people want to come on board, I don't believe creating a new LLC for each new capital partner makes sense, nor is it scalable.

To clarify: I am NOT looking to pool funds or syndicate at this time. Merely to lend more borrowers money on more of their rehab / flip deals, as well as offer transactional funding for same day double closes.  In essence - each new capital partner would lend only on one deal with me. I will NOT be mingling funds from multiple partners on the same deal.

Locations: Over the last year, I have lent only in Chicago IL, where I'm presently based. I'd like to start lending in other states - Texas, Florida, and maybe some others as well as Chicago.

Goal: Before presenting these lending opportunities to new capital partners, I'm hoping to glean more insight into the wisest, most efficient way to structure these partnerships to protect everyone involved. I've read/learned a little bit about: Partnership lending, table / wholesale funding, fractional notes, lending trusts, note on note. 

> Is one of these the best option? 

> What other options are there that are streamlined and will protect everyone involved?

> Which type of attorney I'd need to hire to draw up a legal document(s) for this type of partnership?

Thanks so much in advance for your wisdom and advice!

 Here is what I would do:

Take the existing LLC and do a participation agreement with them on that specific deal. So your entity would still be the lender, but you have a participation agreement on the loan.

This will not be syndicating and should keep you out of hot water with SEC etc (note not an attorney but do participation agreements all the time). 

Note that the partners agreement is not recorded but they receive a partial assignment and allonge from you. 

My attorney also mentioned this assignment and allonge - I'm going to get that template for use on future transactions. Makes a lot of sense! Also, my attorney recommended a Co-Lending Agreement as opposed to a participation agreement. Have you use co-lending agreements before?

 have not done co-lending agreement in the past, so not sure the difference - in participation there is one person who is the "manager" of the loan - I would ask that question in co-lending agreement. for example in my agreement if it defaults we manage it and call the shots - in co-lending who makes that decision?

It sounds similar! My LLC is the 'lead lender', and my capital partner is the 'co-lender'. My company makes all the decisions. 

Really love this post! Thoughtful and high-value points - thanks for sharing your take.

I live in Chicago and had a similar experience navigating regulations. I used to rent my extra bedroom/bathroom mid-term (32+ days) specifically to bypass the city's STR rules. Being in the prime South Loop near literally everything (CTA, Grant Park, Lake, buses, Loop, etc.) was definitely key – I stayed booked solid for over 2 years with almost no gaps. I suspect the strict STR regulations actually helped my MTR strategy, possibly by limiting the supply of shorter-term options and channeling demand towards slightly longer stays like mine in such a central spot.

Separately, my experience managing a single-family home in Knoxville, TN (about 2 miles from downtown) offers another perspective. While my main focus there is MTR, I do use occasional shorter stays (STR) just to fill vacancies between my mid-term guests. What's interesting is, even though the house is adorably decorated (if I say so myself, LOL!), it's definitely not fancy and lacks typical 'party' amenities like hot tubs or game rooms. We're also not in a tourist hotspot like the Smokies.

Because of this, our guests – even the shorter-term ones – tend to be very stable and respectful. They're usually larger families or groups of friends in town visiting local family, attending university-related events (medical school, football games), or here for youth sports tournaments. It seems the property style and location naturally filter for a different, more grounded guest profile compared to typical high-amenity vacation rentals geared towards tourists just looking for a fun time. It really shows how location, property type, and local rules all interact!

Quote from @Chris Seveney:

Quote from @Jennie Berger:

Hello BP!

I have a growing community of friends / colleagues / et al who are interested in putting their money to work passively by private lending. I've been in the private lending space for about 1 year, and have lent on 3 projects to date. I have connected with many borrowers who are asking me to lend on their deals, and while many of these deals sound very attractive, I'm limited in my own source of funds, hence the reason for this post.

Background: I've been a designer and developer for the last 5.5 years, specializing in large gut renovations and ground up construction of single family homes and small multi unit buildings in the city of Chicago. I own and operate a few rentals, both mid term furnished and long term unfurnished, in 3 different states. I am an Illinois licensed real estate agent (mainly used for my own developments).

My Role in these private lending partnerships: Source and vet the borrowers, underwrite deals, originate, manage and service the loan, be a fiduciary. 

Context: Currently I lend in both my own LLC (just me, sole owner), and in a separate LLC (JV between one of my capital partners and me). This works well, but seeing as new people want to come on board, I don't believe creating a new LLC for each new capital partner makes sense, nor is it scalable.

To clarify: I am NOT looking to pool funds or syndicate at this time. Merely to lend more borrowers money on more of their rehab / flip deals, as well as offer transactional funding for same day double closes.  In essence - each new capital partner would lend only on one deal with me. I will NOT be mingling funds from multiple partners on the same deal.

Locations: Over the last year, I have lent only in Chicago IL, where I'm presently based. I'd like to start lending in other states - Texas, Florida, and maybe some others as well as Chicago.

Goal: Before presenting these lending opportunities to new capital partners, I'm hoping to glean more insight into the wisest, most efficient way to structure these partnerships to protect everyone involved. I've read/learned a little bit about: Partnership lending, table / wholesale funding, fractional notes, lending trusts, note on note. 

> Is one of these the best option? 

> What other options are there that are streamlined and will protect everyone involved?

> Which type of attorney I'd need to hire to draw up a legal document(s) for this type of partnership?

Thanks so much in advance for your wisdom and advice!

 Here is what I would do:

Take the existing LLC and do a participation agreement with them on that specific deal. So your entity would still be the lender, but you have a participation agreement on the loan.

This will not be syndicating and should keep you out of hot water with SEC etc (note not an attorney but do participation agreements all the time). 

Note that the partners agreement is not recorded but they receive a partial assignment and allonge from you. 

My attorney also mentioned this assignment and allonge - I'm going to get that template for use on future transactions. Makes a lot of sense! Also, my attorney recommended a Co-Lending Agreement as opposed to a participation agreement. Have you use co-lending agreements before?

***UPDATE*** Thought this info would be valuable to those also looking to grow their private lending business withOUT growing too large into a full fledged 'organization', 'syndication', or 'fund.' 

I spoke with an attorney yesterday who specializes in private money lending (among other areas) and we decided the best method for what I'm trying to accomplish currently is a 'CO-LENDING AGREEMENT.' Essentially, it specifies all of the terms and expectations from and for the lending partner I'm bringing in on each particular deal.

Granted, this type of agreement requires a high level of trust from the lending partner, as they will be investing their money into deals I have vetted, and sending money to my LLC's bank account. While I don't think this type of arrangement would work across the board - particularly for people I know but haven't established a very close relationship with - it's a great starting point for working with those who know me and have a high level of confidence in my strategy, underwriting, connections, and above all, character.

A second option I've investigated further that I'm also going to pursue (which was discussed here briefly) is working with capital partners who have money they're looking to put to work but no time or interest in vetting the borrowers or the deals.  Essentially, 'brokering' (if you will) the deal between the borrower and the lender. I'm responsible to source, vet, underwrite, originate, and service the loan from start to finish, while my borrower gets funded, my capital partner makes a solid interest rate, and I earn the origination fees along with a small servicing fee, if applicable. ***This type of 'brokering' may not be allowed in every state, but in the states where it is, I belive it's a very viable option to grow my lending business without having to allocate all of my own capital to these deals. Check with an attorney in the state you wish to lend in to ensure this is legal.

As someone who has been on both sides of these types of transactions - that is, the designer / developer / builder / borrower / Realtor and now the lender - that's where I believe I can provide the most value.

I am always open to collaborations and partherships AND learning more, so please feel free to chime in with suggestions, questions, and anything you find pertinent to share!

Quote from @Henry Lazerow:

Before:

After: 

When we bought the building, it had a tenant who needed to be evicted with big nasty dogs. We ended up paying him $2500 to leave, as did not want to wait the whole 8 months for an eviction.

Purchase: $135k

Sold: $450k. Original expected ARV was $400k. Redfin has Little Village growth at 10.6% in last 12 months so we got lucky on that end and our ARV was very accurate prior to the last 12 months of appreciation. Ran MLS comps to determine.

Rehab costs: Prefer not to share on a public forum.

Financing: Did a 25% down rehab loan that was at 9% and 2.5 points from a local bank. I also used my HELOC from another property for most of the downpayment so really did the deal with close to $0 out of pocket. My heloc is at 8.5%.

Scope of rehab: Kitchens/baths/flooring/paint. The basics to make it nice and rent ready, kept unit layouts the same. Some new windows, gutters, new garage door, motor, etc. Everything was beat up from decades of being a rental prior. 

We rented the 3/1 garden unit for $1720. I have the top unit 3/2 as a rental listing now from the new owner and have had a ton of inquiries 30+ for $2250. Rents in Little Village have gone WAY up especially if you do a nice rehab. A few years ago I would never of imagined 2 units at nearly half a million and demand for rentals going over $2000+ in Little Village. Probably will be over $500k next year, Brighton Park 2 units (neighborhood next over) are already now breaking $500k mark. The whole SW side is gentrifying rapidly. Looking at a 6 unit in area now for the my next one, this one a BRRR to hold onto long term.

Incredible project and well done! I respect your decision not to share the rehab amount, but I am dying to know what you spent LOL. I really like the SW side - Brighton Park, McKinley Park, anything surrounding / close to Bridgeport really. Thanks for sharing and best of luck with your new 6 unit BRRRR!

@Don Konipol Thank you for your thoughts! 

To clarify, in this scenario...

There's two major aspects to consider. The first is entity formation. I recommend use of a SERIES LLC. Each series is treated for legal and liability purposes as separate from all other series, but only one LLC filing/formation is necessary, and only one tax return filed. We currently have 88 different SERIES in our "parent" LLC. So, the note holder/lender is listed as "Name, LLC Series 1", "Name, LLC Series 2", etc. Ownership of each series will be by percentage ownership of the LLC. Each LLC will hold a single note. You will be manager of the LLC.

...if I am the lender along with 1 other capital partner on one particular deal, would we both own that particular LLC series (50/50, let's say, assuming we both contribute to the project in equal amounts)? 

Quote from @Chris Seveney:

Quote from @Jennie Berger:

Hello BP!

I have a growing community of friends / colleagues / et al who are interested in putting their money to work passively by private lending. I've been in the private lending space for about 1 year, and have lent on 3 projects to date. I have connected with many borrowers who are asking me to lend on their deals, and while many of these deals sound very attractive, I'm limited in my own source of funds, hence the reason for this post.

Background: I've been a designer and developer for the last 5.5 years, specializing in large gut renovations and ground up construction of single family homes and small multi unit buildings in the city of Chicago. I own and operate a few rentals, both mid term furnished and long term unfurnished, in 3 different states. I am an Illinois licensed real estate agent (mainly used for my own developments).

My Role in these private lending partnerships: Source and vet the borrowers, underwrite deals, originate, manage and service the loan, be a fiduciary. 

Context: Currently I lend in both my own LLC (just me, sole owner), and in a separate LLC (JV between one of my capital partners and me). This works well, but seeing as new people want to come on board, I don't believe creating a new LLC for each new capital partner makes sense, nor is it scalable.

To clarify: I am NOT looking to pool funds or syndicate at this time. Merely to lend more borrowers money on more of their rehab / flip deals, as well as offer transactional funding for same day double closes.  In essence - each new capital partner would lend only on one deal with me. I will NOT be mingling funds from multiple partners on the same deal.

Locations: Over the last year, I have lent only in Chicago IL, where I'm presently based. I'd like to start lending in other states - Texas, Florida, and maybe some others as well as Chicago.

Goal: Before presenting these lending opportunities to new capital partners, I'm hoping to glean more insight into the wisest, most efficient way to structure these partnerships to protect everyone involved. I've read/learned a little bit about: Partnership lending, table / wholesale funding, fractional notes, lending trusts, note on note. 

> Is one of these the best option? 

> What other options are there that are streamlined and will protect everyone involved?

> Which type of attorney I'd need to hire to draw up a legal document(s) for this type of partnership?

Thanks so much in advance for your wisdom and advice!

 Here is what I would do:

Take the existing LLC and do a participation agreement with them on that specific deal. So your entity would still be the lender, but you have a participation agreement on the loan.

This will not be syndicating and should keep you out of hot water with SEC etc (note not an attorney but do participation agreements all the time). 

Note that the partners agreement is not recorded but they receive a partial assignment and allonge from you. 

Hey Chris:

This seems to be the easiest way to do things. Assuming my capital partners trust me with their money, I don't see another more efficient way. Should I have an attorney in MY home state draw up this participation agreement? Or, would it be better to have an attorney in the state where we're lending funds to draw it up? (In this case, I'm considering a new loan in TX)

Thank you for your input!

Quote from @Jeff Wills:

I would say that you certainly need an attorney who specializes in lending law in your state to draft you lending docs. You should always be first position, and only lend on the borrowers LLC to avoid homestead/owner occupied foreclosure proceedings which are always less favorable to you.

Personally I do not go over 70% LTV AS IS, but terms are at your discression and comfort level.

Right now, I charge 12% interest to borrowers, and return 9% to my investors Annually. I then charge a 6% origination fee to the borrower, but no other fees apply. 

I think you just set up on LLC/Company, and then all loans should be "originated" from there. If you plan to coinvest, or invest personal funds as well, use a seperate LLC so that you become a client of your parent company, further insulating your liability.

If you have any questions please do not hesistate to reach out, sounds like you have a great foundation already. 

Thank you for your recommendations!

To clarify - are you saying that opening up a new 'joint' LLC under my main LLC (so in essence I would create a series LLC and then open up smaller LLCs underneath it?) with each new capital partner is the best way to scale my lending operations?

I feel I've got the rest down pretty well and am following your SOPs in my practice already. I have 2 LLCs - 1 that I am sole owner of, and another that I have a partner on. I lend in both of these LLCs currently.

Thanks @Mike Grudzien, appreciate the kind words!