Legalities: approaching private lenders

[Lee Syndergaard]

I've yet to purchase my first property. I'm about 2.5 months into the adventure and still in the learning and fact-finding phase.The major thing holding me back from pulling the trigger on deal #1? You guessed it: the financing.

I'm pursuing buy-and-hold, SFH.

I don't have much of my own $$ to throw into the pot, so here's what I'm thinking:
- Figure out about what a house would cost (I'm told to expect ~$200K - $250k)
- Assume a traditional loan, and needing 25% down
- So I'll need to raise ~$62,000 for the down payment
- I approach friends and family, network with potential investors to raise those funds
- Bank supplies the loan for the remaining ~$180,000

Something like that.

Should I speak with a real estate attorney before approaching those potential investors?
Is this considered a syndication? 
What are the legalities involved?
Are there other "creative financing" options I haven't yet learned about?

It's not easy being green :)

For those watching your keyword alerts: Minnesota, Twin Cities, Mound, MInnetrista, Minneapolis, St. Paul

[Tim Swierczek]

@Lee Syndergaard This is not legal advice.  I am not an attorney, but I have syndicated 2 deals so I have some knowledge on the subject.  

First, raising money is not a real estate activity its an SEC-regulated activity so you would need a good SEC attorney.  I have one, Amy Wan, who specializes in Syndication if you are interested in connecting with her.

Is this considered a syndication? That depends on who makes the decisions and who is active in the management of the asset. If you all share in the responsibly and your investors have legitimate say in how it's run its likely not a syndication it's more likely a Joint Venture (JV). Here's where you need an attorney to verify because the details of how you run it matter.

Keep in mind there are financing considerations.  if you are not using your money for the down payment and are bringing on OPM, then you will need to find a portfolio loan or commercial financing.   In other words, both Fannie Mae & Freddie Mac prohibit the use of borrowed funds or investor funds on an investment property transaction, so this structure does not qualify for conventional financing.

PM me if you would like Amy's info or if you would like to grab a coffee and talk more about this sort of structure.